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Exhibit 10.17  


        [*****] = Certain
confidential information contained in this document, marked with brackets, has been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 


 
 

NOTE PURCHASE AGREEMENT    
    


        This Note Purchase Agreement (this "Agreement"), dated as of February 12 1999, by and between
Displaytech, Inc., a Colorado corporation (the "Issuer" or the "Company"), and Hewlett-Packard
Company, a Delaware corporation (the "Purchaser"). 


W I T N E S S E T H:  


        WHEREAS, subject to the terms and conditions of this Agreement, the Company will authorize the issuance and sale of up to $10,000,000 aggregate Principal amount
of its 9% Convertible Notes (the "Notes"); and 


        WHEREAS,
the Issuer wishes to issue and sell the Notes to the Purchaser, and the Purchaser wishes to purchase the Notes from the Issuer, on the terms and subject to the conditions of
this Agreement; and 


        WHEREAS,
the offer and sale of the Notes to the Purchaser, and the offer and sale of the shares of Preferred Stock of the Issuer issuable upon conversion of the Notes, and of the Common
Stock of the Issuer issuable upon conversion of the Preferred Stock will be made without registration of the Notes, such shares of Preferred Stock, or such shares of Common Stock under the Securities
Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption from the registration requirements of the Securities Act; 



        NOW
THEREFORE, in consideration of the premises and the mutual promises set forth herein, the parties hereto hereby agree as follows: 


SECTION 1. DEFINITIONS  


        Section 1.1.    As used in this Agreement, the following terms shall have the following meanings: 



        "Affiliate" has the meaning ascribed to such term in Rule 405 promulgated under the Securities Act. 



        "Board of Directors" means the board of directors of the Issuer or any duly authorized committee of such board. 


        "Business Day" means any day which is not a day on which banking institutions in the Cities of New York, Denver or San Francisco are
authorized or obligated by law, regulation or executive order to close. 


        "Business Plan" means the plans described in the Issuer's Business and Industry Overview, dated December 3, 1998, as amended by a
letter dated February 11, 1999, dealing with outsource manufacturing, attached hereto as Exhibit A. 



        "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and the amount of any such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP. 


        "Capital Stock" means any and all shares of capital stock of the Issuer (however designated and whether voting or nonvoting), and shall
include, but not be limited to, the Common Stock and the Preferred Stock. 








 




        "Cash Equivalents" means (a) securities with maturities of 90 days or less from the date of acquisition that are issued or
fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the
date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the
requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government,
(d) commercial paper of a domestic Person (other than an individual) rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group
("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or
less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank
satisfying the requirements of clause (b) of this definition, or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of
clauses (a) through (f) of this definition. 


        "Change of Control" means the occurrence of any of the following events:(a) any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the
happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or merges with or into, another Person
or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other property; (c) at any time during any
consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 662/3% of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or adopts a plan of liquidation. 


        "Closing Date" has the meaning set forth in Section 3.2 herein. 



        "Common Stock" means the Common Stock, par value $.001 per share, of the Company and all shares hereafter authorized of any class of
common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a consolidation or merger of the Company with or
into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event. 


        "Conditional Notes" has the meaning set forth in Section 2.2(b) herein. 



        "Control" means with respect to any specified person, the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of Voting Stock, 



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by
contract or otherwise; and the terms "Controlling" and "Controlled" have meanings correlative to the
foregoing. 


        "Designation of Rights" means the Certificate of Designation and Determination of Preferences of the Series HP Convertible Preferred Stock
of the Issuer, dated February 17, 1999, creating the Preferred Stock, in substantially the form attached hereto as Exhibit B. 


        "Event of Default" has the meaning set forth in Section 9.1 herein. 


        "Exchange Act" means the Securities Exchange Act of 1934, as amended. 


        "First Closing Date" has the meaning set forth in Section 3.1 herein. 


        "First Disbursement Note" has the meaning set forth in Section 2.2(a) herein. 


        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved
by significant segment of the accounting profession of the United States of America, which are applicable from time to time and are consistently applied. 


        "Holder" means any person owning or having the right to acquire Registrable Securities or any permitted assignee thereof. 


        "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money or for
the deferred purchase price of property or services, excluding any (i) trade account payables arising in the ordinary course of business and (ii) other accrued current liabilities
incurred in the ordinary course of business, including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, banker's acceptance or
other similar credit transaction; (b) all obligations of such Person evidenced by bonds, debentures or other similar instruments; (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business; (d) all Capitalized Lease Obligations of such
Person; (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of
the obligation so secured); (f) all guarantees of Indebtedness referred to in this definition by such Person; and (g) all obligations under or in respect of currency agreements and
interest rate protection obligations of such Person. 


        "Intellectual Property" means all patents, trade secrets, trademarks, trade names, copyrights, mask-work rights and other
similar proprietary rights owned or licensed by the Issuer, its Subsidiaries and used in its business. 


        "Interest" means, with respect to any Note, the amount of all interest accruing on such Note, including all interest accruing subsequent
to the occurrence of any events specified in Sections 9(d) which would have accrued but for any such event, whether or not such claims are allowable under applicable law. 



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        "Interest Payment Date" means, with respect to each Note issued hereunder, the Maturity Date thereof or the date that interest is paid as
a result of a prepayment pursuant to the terms therein. 


        "Investors" means Kingdon Associates, L.P., Kingdon Partners, L.P., M. Kingdon Offshore NV, Century Partners-Dtech, L.P., J. Kermit
Birchfield, Jr., InterWest Capital, Inc., and Hewlett-Packard Company, as parties to the Stock Purchase Agreements, by and among Displaytech, Inc. and the Investors. 


        "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property of any kind; provided that, except as set forth in the next succeeding sentence, in no event shall an operating lease
be deemed to constitute a Lien. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease Obligation or other title retention agreement. 



        "Maturity Date" means, with respect to each Note issued hereunder, the third anniversary of the date the First Disbursement Note is first
issued, as set forth on the face thereof. 


        "Notes" means the instruments of Indebtedness that are issued under this Agreement, substantially in the form of Exhibit C attached
hereto. 


        "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, or the Secretary
of the Issuer. 


        "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Issuer. 


        "Opinion of Counsel" means a written opinion from legal counsel. The counsel may be an employee of or counsel to the Issuer or Purchaser,
as applicable hereunder. 


        "Outstanding Securities" has the meaning set forth in Section 5.1(b) herein. 



        "Permitted Indebtedness" has the meaning set forth in Section 8.1(b) herein. 


        "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company,
trust, charitable foundation, unincorporated organization, government or any agency or political subdivision thereof or any other entity. 


        "Preferred Stock" means the shares of the Company's Series HP Convertible Preferred Stock, par value $.001 per share. 



        "Principal" means, with respect to any debt security, including the Notes, the principal amount of the security plus, when appropriate,
the premium, if any, on the security and any interest on overdue principal. 


        "Purchase Price" has the meaning set forth in Section 2.1 herein. 


        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective Registration, as amended,
covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the
price per share of Common Stock shall be not less than $30.00 per share. 


        "Register," "Registered," and
"Registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration statement or document. 



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        "Registrable Securities" means (i) the Common Stock acquired or acquirable by the Investors pursuant to the Stock Purchase
Agreements and, the shares of Common Stock issuable upon exercise of the warrants acquired or acquirable pursuant to the Stock Purchase Agreements between the Investors and the Issuer (including,
without limitation, the "Anti-dilution Warrants" as defined in the Stock Purchase Agreements) and (ii) any
Common Stock issued as a dividend or distribution with respect to or in exchange for such Common Stock, excluding in all cases, however, (i) any Common Stock that would otherwise be Registrable
Securities transferred in a transaction in which the Investors' rights under Section 2 of such Shareholders' Rights Agreement are not properly assigned pursuant to Section 2.13 of such
Shareholders' Rights Agreement and (ii) any Common Stock that would otherwise be Registrable Securities, if such securities, in the hands of the Holder thereof (A) are no longer
restricted securities under the Securities Act or (B) may be sold, together with all other Common Stock (whether Registrable Securities or otherwise) held by such Holder, in any single
three-month period, because the volume limitations of Rule 144 are not applicable or otherwise. 



        "SEC" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of the
Agreement such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. 


        "Second Disbursement Note" has the meaning set forth in Section 2.2(a) herein. 


        "Securities Act" means the Securities Act of 1933, as amended from time to time. 



        "Shareholders' Rights Agreement" means the Shareholders' Rights Agreement, dated as of October 2, 1995, by and among the Issuer and
the Investors, as amended by Amendment No. 1, dated as of October 10, 1997, and Amendment No. 2, dated as of January 27, 1998. 


        "Stock Purchase Agreement" means each of that certain Stock Purchase Agreement, dated as of March 31, 1995, as amended, by and
among the Issuer, J. Kermit Birchfield, Jr. and Century Partners-Dtech, L.P., that certain Stock and Warrant Purchase Agreement, dated as of October 2, 1995, as amended, by and among the J.
Kermit Birchfield, Jr., Century Partners-Dtech, L.P., and Kingdon Associates, L.P., Kingdon Partners, L.P. and M. Kingdon Offshore NV, that certain Stock Purchase Agreement, dated as of
October 11, 1997, as amended, between the Issuer and InterWest Capital, Inc., and that certain Stock Purchase Agreement, dated as of January 27, 1998, as amended, by and among the
Issuer and the Purchaser (the "HP Stock Purchase Agreement" and collectively with the other agreements described herein, the
"Stock Purchase Agreements"). 


        "Subsequent Closing Date" has the meaning set forth in Section 3.2 herein. 



        "Subsidiary" means, with respect to the Issuer, (i) a corporation a majority of whose Voting Stock is at the time, directly or
indirectly, owned by the Issuer, by one or more Subsidiaries of the Issuer or by the Issuer and one or more Subsidiaries and (ii) any other Person (other than a corporation), including, without
limitation, a joint venture, in which the Issuer, one or more Subsidiaries or the Issuer and one or more Subsidiaries, directly or indirectly, at the date of determination thereof, has at least
majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Person performing similar functions). For purposes of this definition, any directors'
qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 


        "Third Disbursement Note" has the meaning set forth in Section 2.2(a) herein. 


        "Transaction Documents" means this Agreement, the Note and the Designation of Rights. 


        "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof under ordinary circumstances have the
power to vote in the election of the board of 



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directors,
managers or trustees of any Person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the
happening of any contingency). 




SECTION 2. SALE AND PURCHASE OF NOTES.  


        Section 2.1.    Subject to the terms and conditions of this Agreement, the Issuer agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Issuer, up to $10,000,000 aggregate Principal amount of Notes on the Closing Dates. The purchase price of the Notes purchased by the Purchaser
shall be 100% of the Principal amount thereof (the "Purchase Price"). 


        Section 2.2.    Forms and Dating of Notes.    



        (a)   The
Notes shall be in substantially the form of Exhibit C attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any
applicable law. The Notes shall be issued in the Principal amounts of $5,000,000, $3,000,000, and $2,000,000 (the "First Disbursement Note", the
"Second Disbursement Note" and the "Third Disbursement Note," respectively). 



        (b)   On
the First Closing Date, the Issuer agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, the First Disbursement Note. The
First Disbursement Note shall be dated as of the First Closing Date. Subject to the terms and conditions of Section 2.3 of this Agreement, the Issuer agrees to issue and sell to the Purchaser,
and the Purchaser agrees to purchase from the Issuer, the Second Disbursement Note and the Third Disbursement Note (collectively, the "Conditional
Notes"). Each Conditional Note shall be dated as of its respective Closing Date. 




        Section 2.3.    Conditions Precedent to Sale and Purchase of the Conditional Notes.    In addition to the
conditions with respect to a Subsequent Closing specified in Section 4, prior to the issuance, sale and purchase of each of the Conditional Notes, the following conditions will have been met:
the Chief Financial Officer of the Issuer shall have provided to the Purchaser a written notice (the "Initial
Notice") (a) setting forth a Subsequent Closing Date (which Subsequent Closing Date will be at least 60 days after the Initial Notice Date) for the issuance of
the Conditional Note to which such Initial Notice relates, (b) attesting that (i) the amount of cash and Cash Equivalents available to the Issuer will be less than $1,000,000 on such
Subsequent Closing Date and (ii) the Issuer is executing the Business Plan, and (c) setting forth as the date of such Initial Notice (the "Initial Notice
Date"). The Purchaser will (subject to the conditions specified in this Section 2.3 and Section 4) purchase the Conditional Note that is the subject of the
Initial Notice on the Subsequent Closing Date set forth therein if the Purchaser shall determine that, in its reasonable opinion in discussion with the Issuer, the Issuer is executing the Business
Plan. The Purchaser shall deliver to the Issuer as soon as practicable but in no event later than 10 Business Days after receipt of the Initial Notice, a notice (the
"Responsive Notice") stating either that (x) the Purchaser will proceed with the transaction contemplated by the Initial Notice (a
"Favorable Responsive Notice") or (y) the Purchaser has determined that, in its reasonable opinion in discussion with the Issuer, the Issuer is
not executing the Business Plan and the Purchaser will not proceed with the transaction contemplated by the Initial Notice (an "Unfavorable Responsive
Notice"). 


SECTION 3. CLOSING  


        Section 3.1.    The closing of the issuance and sale of the First Disbursement Note (the "First
Closing") shall be held at the offices of the Issuer, in Colorado, at 9:00 a.m., local time, on 


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February 17,
1999, or at such later date and time as the parties shall mutually agree (the "First Closing Date"). The First Disbursement Note
shall be registered in the name of the Purchaser and shall be in such denominations as the Purchaser may request not less than three (3) Business Days prior to the Closing Date. 



        Section 3.2.    After the conditions of Section 2.3 have been met by the Issuer, the closing of the issuance and
sale of each of the Conditional Notes (each, a "Subsequent Closing") shall be held at the offices of the Issuer, in Colorado, at a date and time
specified by the Issuer or at such other place or date and time as the parties shall mutually agree (each, a "Subsequent Closing Date") (the First
Closing Date and each of the Subsequent Closing Dates, collectively, the "Closing Dates"). Each Conditional Note shall be registered in the name of the
Purchaser and shall be in such denominations as the Purchaser may request not less than three (3) Business Days prior to the respective Subsequent Closing Date. 


        Section 3.3.    The Purchaser shall pay the Purchase Price to the Issuer on the Closing Date by wire transfer of
immediately available federal funds or in other immediately available funds to the account set forth on Exhibit D attached hereto. 


        In
addition to delivery of the Notes, the Issuer shall, at the request of the Purchaser, execute and deliver at the Closing such receipts, endorsements and other documents acknowledging
receipt of the Purchase Price as the Purchaser may reasonably request. 


SECTION 4. CONDITIONS TO THE CLOSING  


        Section 4.1.    The obligation of the Purchaser to purchase each of the Notes and pay the Purchase Price is subject to
(i) performance by the Issuer of all its obligations under this Agreement to be performed by it on or prior to the Closing Date for such Note, (ii) as of such Closing Date, the accuracy
(as of their dates) of the statements of the Transaction Documents related thereto, and (iii) satisfaction of the conditions set forth below to the extent such conditions relate to the
applicable Closing Date: 



        (a)   As
of each Closing Date, no fact or condition shall exist under applicable law, rule or regulation or interpretations thereof by any regulatory authority which in the
Purchaser's reasonable opinion would make it illegal for the Issuer to issue and sell the Note to be issued at such Closing Date, or for the Issuer or any of the other parties thereto to perform their
respective obligations under the Transaction Documents related thereto. 


        (b)   As
of each Closing Date, the representations and warranties made by the Issuer in this Agreement shall be true and correct on and as if they had been made on the
respective Closing Date (except to the extent a different date is reasonably specified in any such Transaction Document); the Issuer shall have performed and complied with all agreements and
conditions hereof required to be performed or complied with by it on or before each Closing Date; and no event shall have occurred and no condition shall exist which would constitute an Event of
Default under this Agreement. 


        (c)   As
of the First Closing Date, this Agreement shall have been duly authorized, executed and delivered by the Issuer, and shall be in full force and effect on each Closing
Date. 


        (d)   The
Issuer shall have delivered the Note to be purchased at such Closing Date in accordance with the terms of Section 2 hereof, and, as of the First Closing Date,
the Purchaser and the Issuer shall each have received a fully executed counterpart original and any required conformed copies of this Agreement and any related documents delivered at or prior to the
First Closing Date. 



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        (e)   The
Purchaser shall have received an Opinion of Counsel satisfactory to it, dated such Closing Date, substantially in the forms of Exhibit E. 


        (f)    The
Purchaser shall have received an Officer's Certificate, dated as of the respective Closing Date, in form and substance reasonably satisfactory to it and its counsel
to the effect that the issuance, sale and delivery of the Note being issued at such Closing Date by the Issuer, and each Transaction Document to which it is a party and any other documents executed by
or on behalf of the Issuer in connection with the transactions contemplated for such Closing Date have been duly authorized. 


        (g)   Any
taxes, fees and other governmental charges which are due and payable in connection with the execution, delivery and performance of this Agreement and the execution,
delivery, sale and performance of the Notes which are required to be paid by the Issuer shall have been paid by the Issuer, at or prior to the Closing Dates. 


        (h)   As
of the First Closing Date, the Issuer shall have received a written waiver substantially in the form of Exhibit F attached hereto. 




        Section 4.2.    The obligation of the Issuer to issue and sell each of the Notes is subject to satisfaction of the
conditions set forth below to the extent such conditions relate to the applicable Closing Date: 



        (a)   As
of each Closing Date, the representations and warranties made by the Purchaser in this Agreement shall be true and correct on and as if they had been made on the
respective Closing Date. 


        (b)   The
Issuer shall have received an Opinion of Counsel satisfactory to it, dated such Closing Date, substantially in the form of Exhibit G attached hereto. 



        (c)   The
Issuer shall have received a certificate, dated as of the respective Closing Date, in form and substance reasonably satisfactory to it and its counsel to the effect
that the transactions contemplated for such Closing Date have been duly authorized. 


        (d)   As
of the First Closing Date, the Issuer shall have received a written waiver substantially in the form of Exhibit F attached hereto. 




        Section 4.3.    If any of the conditions specified in this Section 4 shall not have been fulfilled in all material
respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all respects satisfactory in form and
substance to the Purchaser with respect to Section 4.1 hereof, or the Issuer, with respect to Section 4.2 hereof, this Agreement and all obligations of the Purchaser or the Issuer, as
the case may be, hereunder may be canceled at, or at any time prior to, the Closing Dates by the Purchaser or the Issuer, as the case may be. Notice of such cancellation shall be given to the
Purchaser or the Issuer, as the case may be, in writing or by telephone or telecopy confirmed in writing. In any case of cancellation hereunder, any Notes theretofore issued, and all rights and
obligations in connection therewith (including, but not by way of limitation the rights and obligations set forth in Section 7 of, and all other ongoing similar provisions under, this
Agreement), shall survive such cancellation and shall remain outstanding in full force and effect in accordance with the terms and provisions thereof. 


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   SECTION 5. REPRESENTATIONS AND WARRANTIES  


        Section 5.1.    The Issuer hereby represents and warrants to the Purchaser that, except as set forth on the Schedule of
Exceptions furnished to the Purchaser and attached hereto as Exhibit H, specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder: 



        (a)    Organization, Good Standing and Qualification.    The Issuer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted in its Business Plan
previously furnished to the Purchaser and to enter into and perform this Agreement and the other agreements to be entered into in connection herewith. The Issuer is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. 


        (b)    Capitalization.    The Issuer is authorized to issue 10,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, par value $.001 per share, of which 176,100 shares of Series A Preferred Stock was issued on August 31, 1987, all of which has been converted into Common Stock and no
other series of preferred stock has been issued. There are 1,920,237 shares of Common Stock, 265,744 warrants exercisable for a total of 265,744 shares of Common Stock, and 769,250 options and
exercisable for a total of shares of Common Stock, that are currently outstanding (the "Outstanding Securities"; the total number of shares of Common
Stock so issued and issuable being referred to as the "Current Outstanding Common Stock"). The issuance and sale or grant of such outstanding shares,
options and warrants (and the offer of the shares of Common Stock issuable upon exercise of such warrants and options) were and are exempt from Registration, and such shares were issued in conformity
with the permit or qualification requirements of all applicable state securities laws. There are no Outstanding Securities other than the options and warrants described above that are, or upon
completing the transactions contemplated herein will be, excercisable or convertible into any shares of Capital Stock, other than the Notes and the Preferred Stock. 



        (c)    Subsidiaries.    Other than Displaytech International, Inc., a Colorado corporation, the Issuer does not
presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. 


        (d)    Authorization.    All corporate action on the part of the Issuer, its officers, directors and shareholders
necessary for the authorization, execution and delivery of this Agreement, the Notes and the Designation of Rights, the performance of all obligations of the Issuer hereunder and thereunder and the
authorization, issuance (or reservation for issuance) and delivery of the Notes and the Preferred Stock and Common Stock issuable upon conversion of the Notes has been taken or will be taken prior to
the Closings and this Agreement and the Notes constitute the valid, binding and enforceable obligations of the Issuer in accordance with the terms, subject, as to the enforcement of remedies, to
bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and to general principles of equity. 


        (e)    Valid Issuance of Preferred Stock and Common Stock.    



          (i)  The
shares of Preferred Stock and the shares of Common Stock, if any, issuable pursuant to Section 10 herein, when issued, sold and delivered in accordance with
the terms herein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of the Purchaser in this Agreement, will be issued in compliance with all
applicable federal and state securities laws. 




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         (ii)  The
Outstanding Securities are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with all applicable federal and
state securities laws. 




        (f)    Governmental Consents.    No consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Issuer is required in connection with the consummation of the transaction
contemplated by this Agreement. 


        (g)    Litigation.    There is no action, suit, proceeding or investigation pending or, to the knowledge of the
Issuer, currently threatened against the Issuer which questions the validity of this Agreement or the right of the Issuer to enter into it, or to consummate the transactions contemplated thereby, or
which might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Issuer, financially or otherwise, or any change in
the current equity ownership of the Issuer, nor is the Issuer aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or, to the Issuer's
knowledge, threatened (or any basis therefor known to the Issuer) involving the prior employment of any of the Issuer's employees, their use in connection with the Issuer's business of any information
or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Issuer is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Issuer currently pending or which the Issuer intends to initiate. 


        (h)    Patents and Trademarks.    To the Issuer's knowledge, it has sufficient title and ownership or rights to use of
all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be
conducted as described in the Business Plan without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Issuer bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or entity. A list of all patents, patent applications, trademarks and trademark applications issued since January 27,
1998 is set forth on the Schedule of Exceptions. The Issuer has not received any communications alleging that the Issuer has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Issuer aware of any such violations. The Issuer
is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of the employee's best efforts to promote the interests of the Issuer or that would conflict with the Issuer's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement or the other Transaction Documents, nor the carrying on of the Issuer's business by the employees of the Issuer, nor the
conduct of the Issuer's business as proposed, will, to the Issuer's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now obligated. The Issuer does not believe it is or will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Issuer. Each of the Issuer's employees has executed a Proprietary Information, Non-Competition and Patent Assignment
Agreement substantially in the form provided as Exhibit D to the HP Stock Purchase Agreement. 



10







 




        (i)    Compliance with Other Instruments.    



          (i)  The
Issuer is not in violation or default of any provisions of its articles of incorporation as amended ("Articles of
Incorporation") or bylaws, as amended ("Bylaws") or of any instrument, judgment, order, writ, decree or contract to which it is
a party or by which it is bound or, of any provision of federal or state statute, rule or regulation applicable to the Issuer, except to the extent that any such violation or default could not, either
individually or in the aggregate, have a material adverse effect on the Issuer's business, financial condition or prospects or on the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of
time or giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance
upon any assets of the Issuer. 


         (ii)  To
its knowledge, the Issuer has avoided every condition, and has not performed any act, the occurrence of which would result in the Issuer's loss of any right granted
under any license, distribution or other agreement, the loss of which could have, either individually or in the aggregate, a material adverse effect on the Issuer's business, financial condition or
prospects or on the transactions contemplated hereby. 




        (j)    Agreements; Action.    



          (i)  Except
for the Stock Purchase Agreements and the Shareholders' Rights Agreement, there are no agreements, understandings or proposed transactions between the Issuer and
any of its officers, directors or affiliates, or any affiliate thereof (including any entity in which any such officer, director or affiliate has an ownership interest). 


         (ii)  With
the exception of the transactions contemplated by this Agreement or as previously disclosed in the HP Stock Purchase Agreement, there are no material agreements,
understandings, instruments, contracts or proposed transactions to which the Issuer is a party or by which it is bound which involve (i) obligations of, or payments to the Issuer in excess of,
$100,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Issuer. A true and complete copy of each agreement listed on the Schedule of
Exceptions (other than agreements identified as United States government contracts, and agreements which, in the opinion of the Issuer, if disclosed, would breach an obligation of confidentiality) is
attached thereto. 


        (iii)  With
the exception of the transactions contemplated by this Agreement or as previously disclosed in the HP Stock Purchase Agreement, the Issuer has not
(w) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (x) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $100,000, (y) made any loans or advances to any person, other than ordinary advances for travel expenses or loans for stock
purchases exceeding $10,000, or (z) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 


        (iv)  The
Issuer is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Articles of Incorporation or Bylaws,
which materially adversely affects its business as now conducted or as proposed to be conducted in the Business Plan, its properties or its financial condition or prospects. 




        (k)    Disclosure.    The Issuer has fully provided the Purchaser with all the information which the Purchaser has
requested for deciding whether to purchase the Notes and all information which the Issuer believes is reasonably necessary to enable the Purchaser to make such decision. Neither 



11







 

this
Agreement nor any other statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading. 


        (l)    Business Plan.    The Business Plan has been prepared in good faith by the Issuer and, when taken together with
information disclosed on the Schedule of Exceptions, does not contain any untrue statement of a material fact nor does it omit to state a material fact necessary to make the statements made in the
Business Plan not misleading, when taken together with all other statements contained in the Business Plan, except that with respect to projections contained in the Business Plan, the Issuer
represents only that such projections were prepared in good faith and that the Issuer reasonably believes there is a reasonable basis for such projections based on the assumptions contained in the
Business Plan. 


        (m)    Registration Rights.    Since January 27, 1998, the Issuer has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity. 



        (n)    Corporate Documents.    The Articles of Incorporation and Bylaws of the Issuer are in the form previously
provided to the Purchaser. 


        (o)    Title to Property and Assets.    The Issuer owns its property and assets free and clear of all Liens except
such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Issuer's ownership or use of such property or assets. With respect to the property and
assets it leases, the Issuer is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any Liens. 



        (p)    Financial Statements.    The Issuer has delivered to the Purchaser its audited financial statements (balance
sheet and profit and loss statement, statement of shareholders' equity and statement of cash flows) as of September 30, 1998 and for the year then ended and its unaudited financial statements
(balance sheet and profit and loss statement) as of December 31, 1998 and for the month then ended (collectively the "Financial Statements"). The Financial Statements are complete and correct
in all material respects and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated, except for the failure of the unaudited Financial Statements to
include the footnotes required by GAAP. The Financial Statements fairly set out and describe the financial condition and operating results of the Issuer as of the dates, and for the periods, indicated
therein, subject, in the case of the unaudited financial statements, to normal year-end audit adjustments which will not in the aggregate be material. Except as set forth in the Financial
Statements, the Issuer has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 1998 and
(ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, which, individually or in
the aggregate, are not material to the financial condition or operating results of the Issuer. The Issuer maintains and will continue to maintain a standard system of accounting established and
administered in accordance with GAAP. 


        (q)    Changes.    Since December 31, 1998, there has not been: 



          (i)  any
change in the assets, liabilities, financial condition or operating results of the Issuer from that reflected in the Financial Statements, except changes in the
ordinary course of business which have not been, in the aggregate, materially adverse to the Issuer; 



         (ii)  any
damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results,
prospects or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan); 




12







 





        (iii)  any
waiver by the Issuer of a valuable right or of a material debt owed to it; 



        (iv)  any
satisfaction or discharge of any Lien or payment of any obligation by the Issuer, except in the ordinary course of business or which is not material to the assets,
properties, financial condition, operating results or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan); 


         (v)  any
material change or amendment to a material contract or arrangement by which the Issuer or any of its assets or properties is bound or subject; 


        (vi)  any
material change in any compensation arrangement or agreement with any employee; or 



       (vii)  to
the Issuer's knowledge, any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition,
operating results or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan). 




        (r)    Employee Benefit Plans.    The Issuer does not have any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except for the Issuer's 401(K) Plan. The Issuer has complied and currently is in compliance in all material respects with the applicable
provisions of ERISA with respect to such plan. 


        (s)    Tax Returns, Payments and Elections.    The Issuer has filed all tax returns and reports as required by law.
These returns and reports are true and correct in all material respects. The Issuer has paid all taxes and other assessments due, except those contested by it in good faith which are listed in the
Schedule of Exceptions. The provision for taxes of the Issuer as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Issuer has not elected pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to
Section 341(f) or Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation
or amortization) which would have a material effect on the Issuer, its financial condition, its business as presently conducted or as proposed to be conducted in the Business Plan or any of its
properties or material assets. 


        (t)    Insurance.    The Issuer has in full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. 



        (u)    Minute Books.    The minute books of the Issuer contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. A true and complete copy of the minute books has been made
available to the Purchaser. 


        (v)    Labor Agreements and Actions.    The Issuer is not bound by or subject to (and none of its assets or properties
is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Issuer, has
sought to represent any of the employees, representatives or agents of the Issuer. There is no strike or other material labor dispute involving the Issuer pending, or to the knowledge of the Issuer
threatened, nor is the Issuer aware of any labor organization activity involving its employees. The Issuer is not aware that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Issuer, nor does the Issuer have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Issuer
is terminable at the will of the Issuer. 



13







 




        (w)    Licenses.    The Issuer possesses from the appropriate agency, commission, board and government body and
authority, whether state, local or federal, all licenses, permits, authorizations, approvals, franchises and other rights (collectively, "Licenses")
which are necessary for it to engage in the business currently conducted by it as described in the Business Plan, except to the extent the failure to have any such License, individually or in the
aggregate with the failure to possess any other Licenses, could not have a material adverse effect on the Issuer's business, financial condition or prospects. 




        Section 5.2.    The Purchaser hereby represents and warrants that: 



        (a)    Authorization.    The Purchaser (i) is a corporation duly organized and validly existing under the laws
of Delaware; and (ii) has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby, including, without
limitation, the purchase of the Note, and the performance of its obligations thereunder. 



        (b)    Purchase Entirely for Own Account.    The Purchaser understands that the Notes, the shares of Preferred Stock
and the shares of Common Stock issuable upon conversion thereof, have not been Registered under the Securities Act nor pursuant to the securities or blue sky laws of any State. The Purchaser is not
acquiring any Note, or any shares of Preferred Stock of the Issuer issuable upon conversion of the Notes, or any Common Stock of the Issuer issuable upon conversion of the Preferred Stock, with a view
to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 



        (c)    Disclosure of Information.    The Purchaser believes it has received (or, in connection with each transaction
contemplated to be concluded on a Subsequent Closing, will receive) all the information it considers necessary or appropriate for deciding whether to purchase the Notes, the shares of Preferred Stock
and the shares of Common Stock issuable upon conversion thereof. The Purchaser further represents that in making its investment decision to purchase the Notes, the shares of Preferred Stock and the
shares of Common Stock issuable upon conversion thereof, it has conducted (or, in connection with each transaction contemplated to be concluded on a Subsequent Closing, will conduct) such
investigation of the Issuer, including a review of the information set forth in the Business Plan and the projections contained therein, as it has deemed (or, in connection with each transaction
contemplated to be concluded on a Subsequent Closing, then deems) reasonably necessary and has had an opportunity to ask questions of and receive answers from the Issuer regarding the terms and
conditions of the offering of the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The foregoing, however, does not limit or modify the
representations and warranties of the Issuer in Section 5.1 of this Agreement or the right of the Purchaser to rely thereon. 


        (d)    Investment Experience; Principal Place of Business.    The Purchaser is an investor in securities of companies
in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that
it is capable of evaluating the merits and risks of the investment in the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The Purchaser is an
"accredited investor" within the meaning of such term set forth in Rule 501 promulgated under the Securities Act and has not been organized for the purpose of acquiring the Notes, the shares of
Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The principal place of business of the Purchaser is the address set forth in Section 13.2 of this Agreement. 



14







 





SECTION 6. EXPENSES  


        Section 6.1.    Whether or not the transactions contemplated hereby or in the Transaction Documents or in any of the
transactions contemplated hereby and thereby shall be consummated, the Issuer and Purchaser shall each pay its own expenses. 


SECTION 7. AFFIRMATIVE COVENANTS  


        Section 7.1.    The Issuer hereby covenants and agrees that, so long as any of the Notes are outstanding: 



        (a)   The
Issuer shall reserve, free from preemptive rights, out of its authorized but unissued Preferred Stock sufficient shares to provide for the conversion of the Notes,
based on the Note Conversion Price (as such term is defined in the Notes). 



        (b)   The
Issuer shall reserve, free from preemptive rights, out of its authorized but unissued Common Stock, sufficient shares to provide for the conversion of the shares of
Preferred Stock, at the Conversion Ratio (as such term is defined in the Preferred Stock and the Designation of Rights) from time to time in effect. 


        (c)   No
later than five (5) Business Days after the occurrence of an Event of Default, the Issuer will deliver, or cause to be delivered, to Purchaser notice of such
Event of Default. Notwithstanding the previous sentence, if an event is an Event of Default specified in Section 9.1(d), the Issuer will deliver, or cause to be delivered, to the Purchaser
notice of such Event of Default at such time that the Board of Directors or all of the members of the Board of Directors receive information about such Event of Default. 


        (d)   If
the Issuer defaults in the required payments, including Principal, Interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same
becomes due and payable, the Chief Financial Officer of the Issuer will deliver, or cause to be delivered to the Purchaser, within 5 Business Days, notice of such default
("First Default Notice"). If after such notice is delivered, the Issuer fails to cure such default within the applicable grace or cure period provided
with respect to such required payment, if any, the Chief Financial Officer of the Issuer will deliver, or cause to be delivered to the Purchaser, within 5 Business Days of the date that such grace or
cure period expires, notice that the Issuer has failed to cure such default within the applicable grace or cure period ("Second Default Notice"). The
Issuer agrees to provide any notice contemplated by this Section 7.1(d) without regard to any waiver of the grace or cure period, subsequent cure, or notice provisions of the Permitted
Indebtedness. 


        (e)   The
Issuer shall pay or discharge or cause to be paid or discharged before the same shall become delinquent all payments of the Notes as set forth therein. 




        Section 7.2    Information.    The Issuer further covenants and agrees that so long as one or more of the Notes
is outstanding or the Purchaser owns at least 30,000 shares of Preferred Stock or Common Stock (including any Preferred Stock or Common Stock issued or issuable pursuant to Section 10 herein)
it shall deliver to the Purchaser the information specified in this Section unless the Purchaser at any time specifically requests that such information not be delivered to it. 



        (a)    Monthly Financial Statement.    As soon as available, but in any event not later than 30 days after the
end of each month (other than the last month of any fiscal quarter of the Issuer), the unaudited consolidated balance sheet of the Issuer and its subsidiaries as at the end of each such month and the
related unaudited consolidated statements of income and cash flows of the Issuer and its subsidiaries for such month and for the elapsed period in such fiscal year, all in reasonable detail and
stating in comparative form (i) the figures as of the end of and for the comparable periods of the preceding fiscal year and (ii) the figures reflected in the operating 



15







 

budget
for such period as specified in the financial plan of the Issuer delivered pursuant to paragraph (e) hereof. All such financial statements shall be complete and correct in all material
respects, shall be prepared in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein and shall be accompanied by a certificate of the
Issuer's chief executive officer or chief financial officer to such effect. 


        (b)    Quarterly Financial Statements.    As soon as available, but in any event not later than 45 days after
the end of each of the first three fiscal quarters, the unaudited consolidated balance sheet of the Issuer and its subsidiaries as at the end of each such period and the related unaudited consolidated
statement of operations, stockholders' equity and cash flows of the Issuer and its subsidiaries for such quarterly period and for the elapsed period in such fiscal year, all in reasonable detail and
stating in comparative form (i) the figures as at the end of and for the comparable periods of the preceding fiscal year and (ii) the figures reflected in the operating budget for such
period as specified in the financial plan of the Issuer delivered pursuant to paragraph (e) hereof. All such financial statements shall be complete and correct in all material respects, shall
be prepared in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein, and shall be accompanied by a certificate of the Issuer's chief
executive officer or chief financial officer to such effect. 



        (c)    Annual Financial Statements.    As soon as available, but in any event within 90 days after the end of
each fiscal year of the Issuer, a copy of the audited consolidated and consolidating balance sheet of the Issuer and its subsidiaries as at the end of such fiscal year and the related audited
consolidated statements of operations, stockholders' equity and cash flows of the Issuer and its subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the figures
as at the end of and for the previous fiscal year, accompanied by an opinion of an accounting firm of recognized national standing selected by the Issuer, which opinion shall state that such
accounting firm's audit was conducted in accordance with generally accepted auditing standards. All such financial statements shall be complete and correct in all material respects and prepared in
reasonable detail and in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein. 


        (d)    Management's Discussion.    Each financial statement delivered pursuant to paragraph (a), (b) or
(c) hereof shall be accompanied by a brief informal narrative description of material business and financial trends and developments and significant transactions that have occurred in the
appropriate period or periods covered thereby equivalent to the Management's Discussion and Analysis required by Item 303 of Regulation S-K under the Exchange Act, or subsequently
enacted rules, as then in effect. 


        (e)    Budgets and Other Information.    As soon as available, but in any event not later than 30 days prior to
the end of each fiscal year of the Issuer, the financial plan of the Issuer for the next succeeding fiscal year, including but not limited to a cash flow projection and operating budget, calculated
monthly, as contained in its operating plan approved by the Board of Directors as well as any updates or revisions to such plan as soon as available. From time to time, such additional information
regarding results of operations, financial condition, business or prospects of the Issuer and its subsidiaries, including without limitation cash flow analyses, projections and minutes of any meetings
of the Board of Directors, as the Purchaser may reasonably request. The Issuer shall also afford to the Purchaser access, at reasonable times and on reasonable prior notice, to the books, records and
properties of the Issuer. 


        (f)    Accountants' Management Letters, etc.    Promptly after receipt by the Issuer, copies of all accountants'
management letters and all management and board responses to such letters, and all certificates as to compliance, defaults, material adverse changes, material litigation or similar matters relating to
the Issuer and its Subsidiaries. 



16







 




        (g)    Shareholders' Lists.    As soon as available, but in any event within 30 days after the end of each of
the first three fiscal quarters, a shareholders' list, showing, as of the end of each fiscal quarter, the authorized and outstanding shares by class (including the Common Stock equivalents of any
convertible security), the holders of all outstanding shares (both before giving effect to dilution and on a fully-diluted basis) and all outstanding options, warrants and convertible securities, and
detailing all options granted, exercised or lapsed and all shares issued or sold. 


        (h)    Option Plans.    Within 60 days after the end of each fiscal year, the information requested in
paragraph (g) above, and in addition, copies of all stock option plans, and a list detailing all options granted, issued or lapsed; all warrants granted or issued (whether to directors, in
connection with financings or otherwise) or lapsed; and all stock issued or sold (including in each case, without limitation, all option and warrant exercise prices, stock issuance prices, and other
terms). 


        (i)    Other Reports and Statements.    Promptly (but in any event within 10 days) after any distribution to
its shareholders generally, to its directors or to the financial community of an annual report, proxy statement or other report or communication, a copy of each such report, proxy statement or other
report or communication and promptly (but in any event within 10 days) after any filing by the Issuer with the SEC or with any national securities exchange, of any publicly available annual or
periodic or special report or proxy statement or Registration, a copy of such report or statement and copies of all press releases and other statements made available generally by the Issuer to the
public concerning material developments in the Issuer's business. 



        (j)    Material Litigation.    Within 15 days after the Issuer learns of the commencement or written threat of
commencement of any material litigation or proceeding against the Issuer or its assets, written notice of the nature and extent of such litigation or proceeding. 


        (k)    Notice of Action Relating to Impending Insolvency.    The Issuer will deliver or cause to be delivered to the
Purchaser such information or notice relating to any proposed action relating to insolvency or bankruptcy action at such time that the Board of Directors or all of the members of the Board of
Directors receive information about such insolvency or bankruptcy action. 



17









  



        (l)    Non-Disclosure.    The Purchaser agrees that, except as otherwise required by law, it will keep
confidential and will not disclose or divulge any confidential, proprietary or secret information which the Purchaser may obtain from the Issuer, and which the Issuer has prominently marked
"Confidential," "Proprietary" or "Secret" or has otherwise identified in writing as being such, pursuant to financial statements, reports and other materials submitted by the Issuer as required
hereunder unless such information is or becomes known to the Purchaser from a source other than the Issuer or is or becomes publicly known, or unless the Issuer gives its written consent to the
Purchaser's release of such information, except that no such written consent shall be required (and the Purchaser shall be free to release such information), if such information is to be provided to
the Purchaser's lawyer, accountant, or to an employee, officer, director or partner of the Purchaser or of the Purchaser's affiliate, provided that the Purchaser shall inform the recipient of the
confidential nature of such information, and shall instruct the recipient to treat the information as confidential. 




SECTION 8. NEGATIVE COVENANTS  


        Section 8.1.    


        (a)   The
Issuer will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or
indirectly liable, contingently or otherwise, for the payment of (in each case, to "incur") any Indebtedness, except as provided in Section 8.1(b) below. 



        (b)   Notwithstanding
the provisions of Section 8.1(a), the Issuer and its Subsidiaries may, to the extent specifically set forth below, incur each and all of the
following (the "Permitted Indebtedness"): 



        (i)    Indebtedness
of the Issuer evidenced by the Notes; 


        (ii)   Indebtedness
of the Issuer, or any Subsidiary outstanding on the Issue Date (the "Existing Indebtedness"), as disclosed
on Schedule 8.1 attached hereto as Exhibit I. 


        (iii)  Indebtedness,
including Existing Indebtedness, of the Issuer or any Subsidiary in an aggregate Principal amount at any one time outstanding not to exceed U.S.
$20,000,000 (or the foreign currency equivalent thereof) or, with the written consent of the Purchaser (such consent not to be unreasonably withheld), U.S. $25,000,000; provided that, the Issuer will
provide notice to the Purchaser when such aggregate Principal amount exceeds U.S. $10,000,000 and U.S. $15,000,000. 


        (iv)  Indebtedness
of the Issuer or any Subsidiary represented by letters of credit for the account of the Issuer or such Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business. 




        Section 8.2.    The Issuer will not, and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien that secures obligations under any pari passu Indebtedness or subordinated Indebtedness on any asset or
property of the Issuer or such Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the
obligations so secured (provided that any Lien securing subordinated Indebtedness shall be subordinate and junior to the Lien securing the Notes with the same relative priority as such Subordinated
Indebtedness shall have with respect to the Notes) or until such time as such obligations are no longer secured by a Lien. 


        Section 8.3.    The Issuer will not in any way hypothecate or create or permit to exist any lien, security interest,
charge, or encumbrance on or other interest in any of its Intellectual Property, and the Issuer, except in the ordinary course of business, will not sell, transfer, assign, pledge, collaterally
assign, exchange, or otherwise dispose of any substantial part of its Intellectual Property. 


18







 



Notwithstanding
the foregoing, the Issuer shall not be prohibited from granting licenses to use its Intellectual Property to third parties in the ordinary course of business. 


        Section 8.4.    The Issuer will not issue any class of stock which shall have a preference of equal or greater value than
the Preferred Stock that is designated the Series HP Convertible Preferred Stock. 



        Section 8.5.    The Issuer will not create or adopt any stock option plan that creates options or warrants for shares of
Common Stock, or issues shares of Common Stock, other than its new Stock Option Plan (the "New Plan") and will not increase the total number of shares
of Common Stock initially issuable pursuant to all such Plans to a number of shares that exceeds 300,000. 


        Section 8.6.    


        (a)   Except
as set forth in Section 8.6(b) below with respect to a Qualified Public Offering: 



        (i)    Prior
to the earlier of the issuance of the Third Disbursement Note under this Agreement or the delivery of an Unfavorable Responsive Notice under Section 2.3 of
this Agreement, the Issuer will not sell any further equity interest in itself, other than the Notes pursuant to this Agreement or pursuant to currently existing rights to purchase Current Outstanding
Common Stock or rights granted under the New Plan or the Issuer's 1988 Incentive Stock Option Plan (which expired on October 11, 1998). 


        (ii)   The
Issuer will not enter into substantive negotiations (which term shall not include preliminary discussions prior to the execution of a letter of intent or similar
document or, if there shall be no letter of intent or similar document, the entry into substantive negotiations of a draft definitive agreement) to offer to sell or sell any such further equity
interest until the earlier to occur of the Subsequent Closing of the Second Disbursement Note or the delivery of an Unfavorable Responsive Notice; provided, however, the Issuer may enter into such
substantive negotiations with, and may offer to sell and sell such further equity interest to, any Investor at any time if the Purchaser and the Investors are informed of all related discussions
promptly and are offered the opportunity to purchase such further equity in the Issuer, such purchase to be in accordance with the terms of the relevant Stock Purchase Agreement if and to the extent
such Stock Purchase Agreement is applicable in accordance with its terms. 


        (iii)  The
Purchaser and the Investors will participate in the purchase of such further equity interest, if they elect to do so, in proportion to the number of shares of
Common Stock (treating the Notes and any other securities of the Issuer held by them as if converted or exercised for Common Stock in accordance with the terms thereof) taken as a percentage of the
total number of shares of Common Stock then issued or so issuable then owned by the Purchaser and each of the Investors, or as the Purchaser and the Investors may otherwise designate. 




        (b)   The
provisions of Section 8.6(a) above to the contrary, notwithstanding, the Issuer may: 



        (i)    Enter
into substantive negotiations at any time with respect to a Qualified Public Offering. 


        (ii)   File a
Registration at any time with respect to a Qualified Public Offering. 


        (iii)  Effect
a Registration at any time after the earlier to occur of the Subsequent Closing of the Second Disbursement Note with respect to a Qualified Public Offering or
delivery of an Unfavorable Responsive Notice under Section 2.3 hereof and take all steps that are necessary or appropriate to consummate the transactions contemplated by such Registration. 



19







 





SECTION 9. EVENTS OF DEFAULT  


        Section 9.1.    An "Event of Default" means any of the following events:




        (a)   the
Issuer fails to pay the Principal of or interest on any of the Notes when due, pursuant to the terms and conditions therein. 


        (b)   the
Issuer does not perform or comply with any one or more of its material obligations in the Notes or this Agreement (other than a default under (a) above) for a
period of 45 days after written notice of such default shall have been given to the Issuer by the Purchaser. 



        (c)   one
or more defaults in the required payments, including Principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same
becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Issuer has failed to cure such default or
defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure, or notice provisions of the
Permitted Indebtedness. 


        (d)   the
Issuer, pursuant to or under or within any applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or like law (i) commences a voluntary
case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iii) makes a general assignment for the benefit of its creditors;
(iv) shall generally not pay its debts when such debts become due or shall admit in writing its inability to pay its debts generally, (v) a court of competent jurisdiction (or like
entity) shall enter an order or decree under any applicable law described above that is for relief against the Issuer in an involuntary case or proceeding, appoints a custodian for the Issuer or such
other entity for all or substantially all its properties or orders the liquidation of the Issuer or such other entity, as applicable, and in each such case in this clause (v), the order or
decree remains
unstayed and in effect for 60 days; or (vi) the Issuer or such other entity shall take any corporate action regarding any of the foregoing. 




        Section 9.2.    Remedies on Default.    Upon the occurrence of an Event of Default pursuant to
Section 9.1, the Purchaser may, in lieu of any other rights Purchasers may have, convert the remaining Principal of the outstanding Notes to shares of Preferred Stock and be paid in cash, or
convert into shares of Preferred Stock, at the Issuer's option, any accrued Interest pursuant to the terms and conditions of the Notes, provided that, if the Issuer chooses to pay such Interest in
cash, the Purchaser shall have the option to convert such Interest into shares of Preferred Stock pursuant to the terms and conditions of Section 6.2 of the Notes. 


SECTION 10. CONVERSION  


        Section 10.1.    The Notes may be converted into shares of Preferred Stock according to the terms and conditions
contained therein. 


        Section 10.2.    Any converted Preferred Stock shall, except that under certain circumstances in the Designation of
Rights may, then be converted into shares of Common Stock pursuant to terms and conditions in the Designation of Rights. 


SECTION 11. REGISTRATION RIGHTS  


        Section 11.1.    Upon conversion of the Preferred Stock to Common Stock, the holder of such shares of Common Stock shall
be entitled to the rights of a stockholder, as regards such converted Common Stock, under the Shareholders' Rights Agreement. 


20







 

SECTION 12. RESERVATION OF BOARD SEATS  


        Section 12.1.    The holders of Series HP Convertible Preferred Stock shall have the right, at their option, to designate
for election to the Board of Directors one (1) person subject to the approval of the then current Board of Directors, which approval will not be unreasonably withheld. In the event that the
Issuer's Board of Directors fails to approve such designee, the holders of shares of Series HP Convertible Preferred Stock shall have the right, at their option, to designate another person who shall
be reasonably acceptable to the then current Board of Directors. 


        Section 12.2.    Notwithstanding the provisions of this Section 12, if the holders of Series HP Convertible
Preferred Stock obtained some or all of such stock pursuant to a remedy described in Section 9.2 hereof, such holders shall have the right, at their option, to designate two (2) persons
for election as members of the Board of Directors subject to the approval of the then current Board of Directors, which approval will not be unreasonably withheld. In the event that the Issuer's Board
of Directors fails to approve any such designee, the holders of Series HP Convertible Preferred Stock shall have the rights, at their option, to designate another person reasonably acceptable to the
then current Board of Directors. 


        Section 12.3.    The Board of Directors shall take such actions as may be necessary to facilitate and implement the
provision of this Section 12 and carry out the intents and purposes hereof, including (but not by way of limitation) amendments to the Issuer's Bylaws to increase the size of the Board of
Directors and to elect the appropriately designated persons to the vacancies thereby created. 



        Section 12.4.    The rights of holders of Series HP Convertible Preferred Stock to designate persons for election as
members of the Board of Directors shall terminate upon a Qualified Public Offering. The members of the Board of Directors designated pursuant to Section 12.1 or Section 12.2 agree to
remove themselves if required by an underwriter in anticipation of a Qualified Public Offering, provided that such members may also remove themselves at will. 



SECTION 13. MISCELLANEOUS  


        Section 13.1.    All agreements, indemnities, covenants, representations and warranties (which representations and
warranties shall be deemed to be made as of the date specified therefor) made by the Issuer herein and in certificates and other instruments delivered pursuant to this Agreement (and
the representations and warranties of the Purchaser in Section 5.2 hereof, which representations and warranties shall be deemed to be made as of each Closing Date) shall survive the execution
and delivery of this Agreement and the delivery of the Notes to the Purchaser and shall continue in effect so long as any Note remains outstanding. 



        Section 13.2.    All notices, demands and other communications hereunder shall be in writing and hand delivered,
telecopied, mailed (by registered or certified mail, postage prepaid) or delivered by a nationally recognized overnight courier service addressed: 



        (a)   if
to the Issuer, to: 




Chief
Executive Officer

Displaytech, Inc.

2602 Clover Basin Drive

Longmont, Colorado 80503

Telephone: (303) 772-2191

Telecopier: (303) 772-2193 





21







 



with
a copy to: 


General
Counsel

Displaytech, Inc.

2602 Clover Basin Drive

Longmont, Colorado 80503

Telephone: (303) 772-2191

Telecopier: (303) 772-2193 





        (b)   if
to the Purchaser: 




Controller

Hewlett-Packard Company

Display Products Division

11413 Chinden Boulevard

Mail Stop 250

Boise, Idaho 83714

Telephone: (208) 396-6000

Telecopier: (208) 396-6214 


with
a copy to: 


Hewlett-Packard
Company

3000 Hanover Street, MS 20BQ

Palo Alto, CA 94304

Attention: General Counsel

Telephone: (650) 857-1501

Telecopier: (650) 857-4392 


or
to such other address as may hereafter be designated in the manner above provided by any party for such purpose, and shall be effective upon receipt. 






        All
payments to be made to the Purchaser shall be made by wire transfer to its account specified in Exhibit D attached hereto. 


        Section 13.3.    This Agreement shall be binding upon, and shall inure to the benefit of, the Issuer and the Purchaser,
and their respective successors and assigns. Nothing expressed herein is intended or shall be construed to give any Person other than the Persons referred to in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement. 


        Section 13.4.    If any provision hereof shall be invalid, illegal or unenforceable in any jurisdiction, the remaining
provisions shall continue to be valid and enforceable in such jurisdiction and such provision shall continue to be valid and enforceable in all other jurisdictions. 


        Section 13.5.    This Agreement shall be construed and enforced in accordance with, and the rights of the parties hereto
shall be governed by, the internal laws of the State of Colorado, without regard to conflict of laws. This Agreement may not be waived, modified or amended without the written consent of the party
against whom such waiver, modification or amendment is claimed. This Agreement may be executed in any number of counterparts, and by the different parties on different counterparts, each counterpart
constituting an original, but all together constituting only one agreement. 


        Section 13.6.    Notwithstanding anything contained herein to the contrary, none of the Issuer's directors, officers,
employees, Affiliates or agents shall be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements, covenants or obligations of the Issuer
hereunder. 


22










        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. 



	 	 	DISPLAYTECH, INC.
	

 	
 	

By	

/s/  MARK A. HANDSCHY      

	 	 	 	Name: Mark A. Handschy
	 	 	 	Title: President
	

 	
 	

HEWLETT-PACKARD COMPANY
	

 	
 	

By	

/s/  BRUCE F. SPENNER      

	 	 	 	Name: Bruce F. Spenner
	 	 	 	Title: Manufacturing Manager










EXHIBIT A  


 BUSINESS PLAN  









	Mr. Bruce Spenner

Display Products Division

Hewlett Packard Company

11413 Chinden Blvd.

MS 395

Boise, ID 83714-1023	 	February 11, 1999





Dear
Bruce, 


        Attached
please find a an amendment to your copy (#786) of Displaytech's Business and Industry Overview dated December 3, 1998. The amendment replaces the section entitled
"manufacturing approach" on page 6 and more accurately reflects Displaytech's recent progress and planning in this important area. 


        Should
you have any questions please call. 


Yours
truly, 



	/s/ J.A. Newcomb
 J.A. Newcomb

Chief Financial Officer	 	 




2602 Clover Basin Drive, Longmont, CO 80503-7603 USA Telephone: 303-772-2191 Fax:
303-772-2193

Website: http://www.displaytech.com 







DISPLAYTECH, INC.  


2602
Clover Basin Drive

Longmont, CO 80503 


http://www.displaytech.com 


303-772-2191 


BUSINESS AND INDUSTRY OVERVIEW  


CONFIDENTIAL  


        This document contains confidential information proprietary to Displaytech, Inc. and may be viewed only by individuals who are obligated under a
Confidential Disclosure Agreement to maintain its confidentiality. Nothing contained herein shall be construed as an offer to sell or solicit securities. 







 
TABLE OF CONTENTS  



	INTRODUCTION	 	3
	

COMPANY OVERVIEW	
 	

4
	 	
COMPANY PROFILE	
 	

4
	 	COMPANY HISTORY AND BACKGROUND	 	4
	 	SALES STRUCTURE	 	5
	
TECHNOLOGY	
 	

7
	 	
FERROELECTRIC LIQUID CRYSTALS (FLCS)	
 	

7
	 	BACKPLANE TECHNOLOGY	 	8
	 	ADDITIONAL TECHNICAL INFORMATION	 	9
	
PRODUCTS	
 	

10
	 	
INTRODUCTION	
 	

10
	 	PRODUCT CHARACTERISTICS	 	10
	 	PRODUCT DESCRIPTIONS	 	13
	
MARKET ANALYSIS	
 	

15
	 	
THE DISPLAY MARKET	
 	

15
	 	THE MAGNIFIED VIEW MARKET	 	17
	 	THE PROJECTION MARKET	 	20
	
COMPETITIVE ANALYSIS	
 	

23
	 	
INTRODUCTION	
 	

23
	 	TECHNOLOGY CATEGORIES	 	23
	 	NLC-ON-SI	 	26
	 	PDLC	 	26
	 	DMD	 	27
	 	GLV	 	27
	 	a-SI TFT-LCD	 	27
	 	POLY-SI TFT-LCD	 	27
	 	X-SI TFT-LCD	 	28
	 	AMEL	 	28
	 	FED	 	29
	 	LED	 	29
	
INTELLECTUAL PROPERTY	
 	

31
	 	
PIONEER PATENTS	
 	

31
	 	DISPLAYTECH PATENTS	 	32
	 	DISPLAY SYSTEMS	 	32
	 	UNIVERSITY OF COLORADO	 	32
	
MANAGEMENT AND BOARD OF DIRECTORS	
 	

33
	 	
MANAGEMENT	
 	

33
	 	BOARD OF DIRECTORS	 	35
	
APPENDIX A	
 	

37
	 	
DISPLAYTECH LIGHTCASTER TECHNOLOGY	
 	

37




2








   INTRODUCTION  


        Displaytech designs, manufactures, and markets miniature display products for use in magnified and projected view applications, as well as electro-optical
products for photonic applications. As the leader in the industry, the company holds critical patents on many device designs, materials, and fabrication techniques. Its products, which utilize
ferroelectric liquid crystals (FLCs) and possess significant advantages over alternatives, are sold to original equipment manufacturers (OEMs). Product applications include monitors or viewing screens
in desktop, laptop, and palmtop computers, large screen televisions, wireless telephones, conference room and personal projectors, and portable DVD viewers. All market applications have multi-million
unit annual volume potential. 


        The
company recently began commercial production and has customer relationships and/or strategic partnerships with multi-billion dollar revenue domestic and international firms. 



        The
following gives an overview of Displaytech's business and its industry. More detailed information will be made available during a site visit at the company's plant and headquarters
location in Longmont, Colorado. 


        The
company's financial data is available as a separate document. 


        Additional
data can also be obtained through the company web site at www.displaytech.com. 


        Please
let an appropriate Displaytech representative know when you would like more information. 


3







 
COMPANY OVERVIEW  


COMPANY PROFILE  


        Displaytech designs, manufactures, and markets products that are based on the use of proprietary FLC materials. The primary product focus is on
high-resolution, full-color miniature electronic displays that are sold to OEMs. Uses for the images created on the Displaytech display panels are with very small form
factor portable electronic devices AND large or very large projection devices. Examples of such uses include the viewing screens for laptop, palmtop, desktop, and wearable computers, wireless
telephones, televisions, personal and conference room projectors, portable DVD viewers, digital cameras, and other high information content devices for business, medicine, entertainment, and the
military. 


        The
actual display panels are the size of a computer chip. Images created on these chips are optically magnified or projected to create a large display with the size, resolution, and
viewing performance comparable to a high quality desktop CRT monitor or television. Displaytech displays that are mounted into eyeglass frames provide portable, lightweight viewing. The same
Displaytech displays, when used in a projection mode, provide compact, lightweight large screen viewing for conference room presentations or desktop computer monitor and television replacement. 


        Displaytech's
miniature FLC displays make mobile communication, computing and entertainment comfortable and easy. By providing wide fields of view, high resolution, brilliant color
clarity, minimum power consumption, high brightness and low cost volume production, Displaytech display panels allow full motion video, graphics, and text to be comfortably viewed and affordably
priced. 


COMPANY HISTORY AND BACKGROUND  


        Displaytech was incorporated in 1984 with headquarters in Boulder, Colorado. The corporate goal was to commercialize the fundamental inventions and discoveries of
highspeed, surface stabilized FLCs. Displaytech's founders, faculty members in physics and chemistry at the University of Colorado, hold the pioneer patents for FLCs and helped develop subsequent
related patents. 


        During
its first ten years in business, Displaytech developed core technical competence in materials, device design, and device fabrication. During that period, Displaytech was a major
participant in the US Small Business Innovation Research (SBIR) program. It won more than $12 million in research and
development contracts and grants from NASA, the US Department of Commerce, the US Department of Defense, the US National Science Foundation and the US Department of Health and Human Services. These
projects have provided Displaytech with an extensive body of knowledge and a powerful patent position in FLC technology and its applications. 


        In
1994, Displaytech began its transition from research and core technology development to product manufacturing and sales. The company won a $1.7 million Advanced Technology
Program (ATP) award from the Department of Commerce. This funding was specifically targeted to develop mass production techniques and improved FLC materials for display products. Following the ATP
award, Displaytech received private capital and crossed the threshold to commercialization. 


        In
December 1996, the company moved into its first full-scale production facility. This facility has 50,000 square feet and is located in Longmont, Colorado, which is
just northeast of Boulder and 30 miles north of Denver. This facility, which is large enough to produce over 1,000,000 displays per month, also houses the company headquarters. Initially, the company
utilized about half of the plant space. The balance of the floor space was occupied during the winter of 1997-98. 


        During
the winter of 1997-98 the company also: 



	•
	Received
its first major multi-year, multi-million dollar order from a multi-billion dollar Asian electronics manufacturer. 



4







 



	•
	Completed
an equity participation agreement and expanded its already strong product and business development alliance with a Fortune 50 electronics firm. 




SALES STRUCTURE  


        Displaytech sells it products as components or subsystems through OEM relationships. In North America, the company sells to and supports customers directly
through its own staff. Internationally, Displaytech works with channel partners (distributors and representatives) to sell and support
customers. In addition, the company has a branch office in Seoul that services the Korean market and supports sales efforts in other parts of Asia. 



 Manufacturing Approach  




        Displaytech has recently revised its manufacturing plan to leverage established high volume liquid crystal device capacity at an offshore location. Selection of
this manufacturing resource was based on a number of critical factors including: 


	1)
	experienced
small parts handling capability



	2)
	leverage
off existing mass production capacity



	3)
	excellent
facilities



	4)
	proven
competence in final device assembly and quality programs 



        In
this way, the company will continue to develop essential, application-specific ferroelectric liquid crystal (FLC) materials in-house, while outsourcing more conventional
device production. 


        Today,
Displaytech is now in pilot production at its 50,000 square foot facility in Longmont, Colorado. Recently, an outsource agreement was reached with an experienced Japanese, high
volume precision parts manufacturer, Miyota Co., Ltd., located in Nagano. This combination of in-house and contract manufacturing capacity will meet current customer requirements
through 2001 and leave room to add several additional strategic accounts in targeted consumer electronics markets. 


        Miyota
is now actively installing back-end capacity to serve as Displaytech's source later in calendar 1999. Current plans anticipate Miyota's installation of front-, middle,
and back-end process lines for high volume applications during calendar year 2000. 



        Displaytech's
manufacturing approach focuses investments on internal process development, equipment, and facilities in areas where its proprietary materials and methods offer unique
added value. In other areas, the company uses outsourcing and contract manufacturing. 


        Displaytech's
operations management is designed to efficiently coordinate and control suppliers, internal operations, and contract manufacturers in a high volume environment. Statistical
process control methods are being refined to minimize variation and maintain target yields. The company's basic manufacturing flow for integrated circuit displays (ICDs) combines outsourced CMOS wafer
fabrication, internal FLC production, a combination of internal and external display cell fabrication, and outsourced integrated circuit back-end processing. 



        If
a customer orders a complete system rather than a stand alone display panel, final assembly (which is performed in-house, as well as by a contract manufacturer) integrates
the ICD with viewing optics, illumination, precision mechanics and electronics. Final test and quality assurance remain in-house Displaytech responsibilities. The company has, and will
maintain a comprehensive pilot production line entirely in-house (except CMOS fabrication) to provide prototype capacity, help develop process improvements, and better monitor the
efficiency of the outsourced suppliers and contract manufacturers. 


5







 
TECHNOLOGY  


        Displaytech's miniature displays take advantage of microsecond switching speeds of patented ferroelectric liquid crystal (FLC) materials and technology. FLC
materials switch fast enough to enable field sequential color techniques to operate flicker-free at full frame video rates of 60 Hz and higher. 



        The
FLC is on an integrated circuit and the integrated circuit controls the FLC on a pixel by pixel basis which in turn generates a reflection so that light bounces off and optics form
an image of pixels for viewing. 


        Taking
advantage of established CMOS fabrication technology, Displaytech panels are reflective, thereby covering the underlying circuitry. Pixels are very small (~12 x12
mm), as are the interpixel gaps (~1 mm). This combination of closely packed, small pixels ensures a display with smooth
continuous images—avoiding the common black matrix or "screen door" effect. The resulting high fill factor (or aperture ratio) eliminates pixelation effects, providing an excellent viewing
experience. 


        Minimizing
pixel geometry also reduces cost in several important ways. First, display panel costs are greatly influenced by the cost of the reflective CMOS backplane. Smaller display
backplanes allow more dice to be included on a single wafer. Additionally, smaller die size results in higher production yields, another cost advantage. 


FERROELECTRIC LIQUID CRYSTALS (FLCs)  


        In 1985, Displaytech developed the first commercial room temperature FLC mixture, with an 18°C wide FLC temperature range. This development resulted
in a flurry of worldwide research activity, which catalyzed the formation of the basis of FLC materials and devices, as we know it today. 



        FLC
materials used in all Displaytech panels are responsible for all electro-optical properties, in particular the contrast, luminous efficiency (or throughput), switching speed (which
determines the grayscale depth), and temperature range. 


        The
dramatic progress that Displaytech has achieved after years of intensive research (1,500 new compounds and 4,000 mixtures) gives the company the fastest switching, broadest
temperature range FLC mixtures in the world. An FLC temperature range has been achieved from -40°C to +83°C. This range allows extremely durable storage temperatures and
remarkably wide operating temperatures that meet specifications for business, consumer, and military applications. Fast switching speeds allow for full 24-bit color depth
(16.7 million colors) in displays resulting in photo-realistic quality at video speeds. 


        The
ability to quickly formulate and optimize new FLC material performance to a particular application—whether it be a hand-held miniature display or a projection
display, has given Displaytech a unique advantage over its competition: the ability to respond to device/materials opportunities and achieve performance improvement goals rapidly and efficiently. 


        Displaytech's
state-of-the-art analytical lab gives the company reliable quality control in both single compounds and the complex FLC mixtures
developed
for use in high-volume, business products. Displaytech is the only company in the world that has developed an automatic liquid crystal property tester resulting in an increase in our
productivity over a hundred-fold. The current facility is designed to have FLC production capacity of up to one million displays a month. 


        With
the strength of its patents, a wealth of proprietary technology in FLC materials synthesis and formulation, and a strong, well-directed R&D
effort—Displaytech is in excellent position to retain its market leadership. 


6







 



BACKPLANE TECHNOLOGY  


        The fast switching speed of Displaytech's proprietary liquid crystal materials allows them to be driven with lower voltages than competing technologies. This
advantage permits the use of standard silicon backplanes, made in standard CMOS process technologies, running at standard voltages (3.3 and 5.0 V). Displaytech plans to ride the wave of higher CMOS
densities and lower costs by increasing the amount of circuitry included in the display chips, increasing the aperture ratio by making the interpixel gaps smaller, and producing high resolution
devices on small silicon die. A major focus of our in-house materials chemistry group is the development of materials that have fast switching speeds at lower voltages. This continuing
development will allow Displaytech to continue to use standard CMOS processes as the semiconductor industry moves to lower voltages—from 5.0 down to 1.8 V over the next few years. 


        The
Displaytech display panel backplane consists of a custom-designed silicon memory chip similar to a standard SRAM or DRAM device. Each bit of the memory is connected to a shiny metal
pad on the surface of the chip, which acts as both a mirror and an electrode for the liquid crystal above it. (Making this metal as shiny as possible is the only non-standard processing
step in the production of the silicon wafers). The overlying FLC is switched between two optical states, depending on whether the memory bit is a logical 0 or 1. In one state, the FLC rotates the
plane of incoming polarized light, while in the other state it does not. External polarizers cause the light either to exit the optical system and be viewed as a bright pixel, or be absorbed in the
polarizer and be seen as a dark pixel. The light is not appreciably absorbed by the FLC itself, making high light-intensity projection applications possible. 


        An
important feature of Displaytech's technology is that the display is an entirely digital device. Conversion to and from analog signals is never required, allowing the sharpest
possible pictures to be produced. This becomes especially important at higher resolutions, where traditional high bandwidth analog signals are difficult to handle. 


        Over
the past two years, Displaytech has increased the sophistication of the circuitry surrounding the active display area of our chips. Our most recent projection TV display panel
includes several different operating modes, such as reversing the up/down and left/right scan directions, which simplifies the optical and mechanical design of end-user systems. We also
employ industry standard JTAG circuitry to allow the electrical operation of each device to be probed and tested at the wafer level before any displays are built. 



        We
expect this trend toward increased integration to continue even further. In the near future, we plan to integrate control functions into the display panel, allowing minimum component
count systems to be built. Since Displaytech's manufacturing process already requires some additional silicon area outside the active area, we can populate this region of silicon with our own control
functions or third-party cores with very little impact on the cost of the silicon. This extra silicon region provides a major benefit to our customers, by enabling them to add value to our design and
differentiate their products by including their own custom circuitry on our device. Although we originally used schematic based tools to design our chips, we are now working in a
high-level language synthesis environment which, among other benefits, is also more compatible with other third-party IP core vendors. 



        For
panels larger than VGA (640 × 480), we are developing a standard interface which will make changes to the control electronics trivial as our customers move
up to XGA (1024 × 768), SXGA (1280 × 1024), UXGA (1600 × 1200) and beyond. 


ADDITIONAL TECHNICAL INFORMATION  


        See Appendix A for more information on Displaytech's technical advantages. 


7








   PRODUCTS  


INTRODUCTION  



        Displaytech's primary product focus is on full-color, high-resolution miniature display panels for projected and magnified imaging
applications. Both systems take advantage of the benefits of virtual displays.


        In
traditional direct view display systems like a standard TV set, the picture viewed by the user is the same size as the picture on the display panel. In projection systems, the picture
viewed by the user is significantly larger than the original image. This is also true of a virtual display system. However, in a virtual display, the display panel is significantly smaller (typically
less than 1-inch) and less expensive than either of the other systems. Additionally, the image can be projected or magnified to almost any size, depending on the type of optics used. 



        In
many applications, especially those requiring pocket-sized portability, a direct view display is a noteworthy disadvantage. For example, miniaturization of a laptop computer is
limited by its useful screen size. Here, a virtual display could easily include the rich color, high resolution, and flicker-free video motion we expect from a cathode ray tube (CRT). All
of these features are included in our virtual display engine, in a package smaller than a two-inch cube. 



        All
Displaytech products use proprietary FLC materials and manufacturing techniques designed to optimize performance while minimizing cost. 


PRODUCT CHARACTERISTICS  



 Full Color on Every Pixel  




        LightCasterTM miniature displays are the first to offer both high resolution and full color on every pixel, implementing sequential color techniques.
Sequential color means that each pixel on the display is illuminated with the proper mix of red, green, and blue colors in fast enough succession for the human eye to fuse the sequence into a single,
smooth color picture. Sequential color requires the fast (microsecond) switching speed of FLC materials. 


        Other
active matrix liquid crystals are made with slower nematic liquid crystals (NLCs). These more conventional AMLCDs employ triads of sub-pixels, which spatially separate
red, green, and blue sub-pixels. This difference is especially noticeable when displays are physically small. LightCaster technology creates a much smoother (less grainy) color image than
triad displays, even at the same resolution. With one third fewer pixels, our LightCaster display panels can also be made smaller, permitting a greater degree of product miniaturization and inherently
lower production costs. 



 High Resolution  




        With LightCaster displays, pixel size and display resolutions are determined by the design of the VLSI backplane. For this reason, Displaytech can offer
significant flexibility in OEM product specifications. For the cost of a new backplane design and a CMOS production run, displays can be produced with customer-specified resolution and pixel pitch,
without significantly altering the downstream production process. 



        VLSI
backplanes are fabricated for high resolutions with extremely small pixels. Displaytech has successfully demonstrated pixels as small as 5.7 microns (4500 dpi), and has demonstrated
fully operational SXGA (1280 × 1024) panels with 7.6-micron pixels (3300 dpi). Competing liquid crystal technologies use much thicker LC layers, causing lateral
electric field cross talk, even with much larger pixels. This cross-talk problem limits usable small panel resolution. 


8







 



 Production Ease/Competitive Cost  




        Production costs of miniature displays are dominated by the cost of the active matrix backplane. Our LightCaster Display backplane is an integrated circuit
produced using standard CMOS processing in a commercial foundry. By itself, this fact assures us of lower unit and capital costs, when compared to the competition. Additionally, the small die size
further increases this advantage. 


        Integrated
circuit costs rise dramatically as chip size increases, for very understandable reasons. First, chips are produced on wafers whose cost is independent of the number or type of
chips it carries. Physically smaller integrated circuits allow more chips to fit on an individual wafer, lowering the unit cost (per chip). 


        Second,
not all chips on a wafer are usable. Yields are always less than 100% due to randomly distributed defects. Statistically, smaller chips lower the probability that a particular
chip will contain a defect. In this way, smaller chips increase yield factors and ultimately reduce unit costs. 



        Displaytech
has developed a scalable manufacturing process for miniature display production. As customers move from Developer Kits to prototype and pre-production runs,
Displaytech can continue to meet increasing demands. The process is then scaled to meet volume production requirements. 



 Miniaturization  




        Market demand is driving consumer product manufacturers to smaller form factors for increased portability and reduced cost. For Displaytech, smaller VLSI
backplanes lower production costs. This combination of low cost and small size is key to consumer products for mobile communications, computing, and photography. 



        LightCaster
technology enables physically small products to include visually large displays. For product designers, Displaytech Display Engine products are virtual display components
with the potential (depending on the customer application) for out-of-the-box functionality. 



 Durability  




        By itself, miniaturization does not ensure portability. Portable products must: 



	•
	be
resistant to shock



	•
	operate
over a broad temperature range



	•
	enable
battery powered operation



	•
	have
long operational lifetimes. 




        Displaytech's
integrated materials and device design approach ensures the necessary durability. 



 Speed  




        The importance of display speed becomes apparent to consumers of display products only when displays under-perform. CRT flicker, unreadable text on miniature
AMLCDs, and cursors that submarine when moved rapidly are all familiar display artifacts which indicate insufficient response time. Displaytech FLC-based display products avoid these
common problems with proprietary materials, device designs, and drive algorithms. 


9







 

PRODUCT DESCRIPTIONS  



 LightCaster Display Developer Kit  




        The Developer Kit is sold to customers to enable them to get first hand experience with the technology. 


        The
LightCaster Developer Kit is an assembly of components that provides OEM product designers with a complete miniature display system that works right out of the box. It allows display
designers to focus on their end product design, not on the technical details of miniature display implementation. OEM customers can thus streamline their product development process and reduce their
time to market. 


        Developer
Kits, which began shipping in March 1997, have proven to be an attractive entry point into the display market. This Kit consists of: a VGA
(640 × 480) imaging panel, magnification and polarization optics, an illumination system, and drive electronics that plug into a standard PCI port, common in every IBM
compatible PC. 



 LightCaster Display Engine  




        The LightCaster Display Engine is an OEM sub-assembly that customers can design into their end user products. 


        The
Display Engine includes all the necessary imaging components in a small, lightweight module—ready for integration into a variety of hand held and head-mounted
display products. 


        The
Displaytech optical design resolves every pixel on the VGA Display Panel. Single pixel fonts and ultra-fine features are clear and sharp. Careful attention has been paid
throughout system design to preserve this pixel-level detail. The VGA Display Engine is ergonomically designed for high-resolution images, engineering drawings, and reference materials. 


        The
LightCaster VGA Display Engine provides: 



	•
	VGA
imaging panel,



	•
	magnification
and viewing optics,



	•
	illumination
system and



	•
	control
electronics. 




        This
opto-mechanical subsystem design integrates easily into handheld and head-mounted products and can greatly reduce product integration time and time to
market. 



 LightCaster Display Panels  




        LightCaster Display Panels are full-color, high-resolution, video-capable electronic displays. These products are sold to customers who
want to design a custom engine for their end user application. The miniature FLC reflective display panels are mounted on a flexible circuit and designed using established CMOS technology. Their high
performance makes them suitable for a range of product applications—from handheld and head-mounted displays to well-known consumer products like wireless
telephones, digital cameras, televisions, and computer monitors. 



VGA Resolution (640 × 480)  




        These compact, lightweight panels can be designed into portable, battery powered applications. In the near term, VGA resolution displays will be used in a variety
of applications including handheld, 


10







 

portable,
and wearable computers, personal DVD players, and head-mounted display systems for medical, military, and industrial use. 



XGA Resolution (1024 × 768)  




        XGA is a popular display resolution and is commonly used in laptop computer systems. Manufacturers of ultra compact and lightweight portable projection systems
prefer this resolution, due to the large installed base of laptop users. The Displaytech XGA panel provides these manufacturers with a single- or multi-chip solution to their low
cost, weight, and power consumption requirements. 



SXGA Resolution (1280 × 1024)  




        LightCaster SXGA Display Panels are designed specifically for projection applications, such as conference room projectors (portable and stationary) and desktop
computer monitors. Both front and rear projection systems will take advantage of the important feature benefits of LightCaster technology: clear, bright color with no graininess or edge fading. 



UXGA Resolution (1600 × 1200)  




        UXGA is the next level of resolution in Displaytech's development plans. OEMs are designing future devices that will utilize this very
high-resolution display. This resolution is particularly attractive in computer workstations and desktop computer monitors. 



 Custom Display Panels  




        Displaytech has also been successful in developing custom display panels for specific customers for rear-projection and head-mounted
display applications. 


11








   MARKET ANALYSIS  


THE DISPLAY MARKET  



 Introduction  




        The display market can be classified by technology, application, viewing configuration, or information content. Since Displaytech's products, and hence its
targeted markets, deal with high information content, we first screen for information content. Once low information content applications like LEDs and vacuum fluorescent displays (wristwatches and
simple calculators, for example) have been eliminated from the analysis, the focus is on the viewing configuration to classify the variety of applications in the display market. 


        The
three standard viewing configurations for displays are direct, virtual, and projected. Direct view means that the size of the image produced by the display is the same size as the
image viewed by the user. Transmissive LCDs have long dominated the flat panel display (FPD) market place with direct view products. Most CRTs are direct view. 


        A
virtual view display is essentially a display engine that produces an image less than 1-inch in size and then enlarges it to any size required by the application. Virtual
view displays can be magnified or projected. Displaytech's LightCaster VGA Display Engine is an example of a magnified virtual display. 


        In
projection configurations, the use of lenses allows the size of the image to be re-sized before being viewed. A projection system can be made with the screen between the
projector and
viewer (rear projection) or with the projector between the screen and the viewer (front projection). Rear projection is most popular for home theatre applications while front projection is most
popular for business presentation applications. 



 Market Size  




        The overall worldwide display market (i.e., CRT and FPD) accounted for $34.8 billion in revenue in 1997. It is projected that over 84.2 million CRT
displays were sold last year with revenues of $20.9 billion.(1) Flat panel displays accounted for $13.9 billion in revenue in 1997.(2) Revenues are forecasted to reach
$31.6 billion by the year 2003. The growth of CRT displays will be slower and revenues are forecasted $28.8 billion in 2003.(3) 




	(1)
	Electronic
Display World, Stanford Resources, July 1997



	(2)
	Electronic
Buyers News, January 26,1998



	(3)
	Electronic
Buyers News, January 26,1998 



 Market Trends  




        Internet—The explosive growth of the Internet and Intranets is accelerating the convergence of
computing and communications and stimulating a new generation of information devices. As such products incorporate personal computing features, they require displays capable of satisfying the
expectations of personal computer users (e.g., text, e-mail, financial reports, graphic and video images, music, sound, and animation). 


        Mobility—The US workforce is increasingly mobile. Forrester Research estimates that over 48 million workers(4) (or 40%
of the workforce) are traveling at any given time. With portable computing devices becoming smaller and the demand for richer content increasing, interest in miniature magnified displays is
increasing. Interest is particularly high for those displays that are designed to be small virtual devices capable of delivering the same (or better) clarity, resolution, and color depth that users
have come to expect from their desktop systems. Displaytech is able to provide 


12







 



this
type of display and meet the requirements of OEM manufacturers as they look to design for flexibility and innovation. 




	(4)
	Quoted
in Nobile, Frederick, "Introduction Market Drivers." 



        Improvements to Existing Display Products—The introduction of Advanced Television (ATV, or High Definition Television
[HDTV]) and the Digital Versatile Disk (DVD) signals the public introduction of digital broadcasting. The industry's need for high definition (i.e., resolution) and different
aspect ratios provides an opportunity for the FPD industry to define the standard for digital displays. As this technology improves and prices decline, the adoption of flat panel monitors should
increase dramatically. The projection market also provides an excellent opportunity to overturn the dominance of the CRT display. With the introduction of LCD- and chip-based
portable projection displays, the portable projector market has grown significantly. 



 Displaytech Market Strategy  




        Concentrate on the development of panels and materials to become world leader in high definition, low cost, miniature imaging devices for projected- and
magnified-view applications. 



	•
	Tailor
products to new applications where information content is high



	•
	Offer
a significant price/performance advantage over established technologies



	•
	Prove
large-scale manufacturing capability at consistently high yields—from pilot to mass production



	•
	Continue
to strengthen OEM relationships 




 Product Mix  




        Displaytech's primary business is the design and manufacturing of high quality display panels to meet the needs of its market segments. Its goal is to produce the
highest quality, full color displays over the range of resolutions available to various applications. As higher resolutions become necessary to fulfill OEM requirements, Displaytech will develop
product to meet their customers' needs. Display products presently in design and/or manufacturing are listed below along with their actual or potential market applications. 


Table I. Displaytech Product Mix  



	Applications
 
	 	SLM

256 × 256
	 	VGA

640 × 480
	 	XGA

1024 × 768
	 	CUSTOM

1024 × 768
	 	CUSTOM

1280 × 768
	 	SXGA

1280 × 1024
	 	UXGA

1600 × 1200

	Digital Phones	 	 	 	•	 	 	 	 	 	 	 	 	 	 
	Digital Cameras	 	 	 	•	 	 	 	 	 	 	 	•	 	 
	Notebooks	 	 	 	•	 	•	 	•	 	 	 	 	 	 
	Wearable Computers	 	 	 	•	 	•	 	•	 	 	 	 	 	 
	Optical Computing	 	•	 	 	 	 	 	 	 	 	 	•	 	 
	Handheld Personal Computer	 	 	 	•	 	•	 	•	 	 	 	 	 	 
	Digital Versatile Disk	 	 	 	 	 	•	 	 	 	•	 	•	 	•
	Advanced Television (HDTV)	 	 	 	 	 	•	 	 	 	•	 	•	 	•
	Rear Projection	 	 	 	 	 	•	 	 	 	 	 	•	 	•
	Desktop/Mobile Projection	 	 	 	 	 	•	 	 	 	 	 	•	 	•




13







 

THE MAGNIFIED VIEW MARKET  



 Introduction  




        Recently, there has been a renewed and increased interest in miniature, magnified displays. Largely, this is a result of advances in miniature display technology,
an increase in bandwidth and data transmission capabilities, the decrease in the size of electronic products, and the integration of multi-functional applications into mobile products. "Smart"
telephones transmit and receive not only voice data but also information from the computer, faxes from the office, or e-mail. Small electronic address books have grown to become scaled
down versions of Windows 95TM (e.g., Windows CETM) that allow the user to word process, work on a spreadsheet, receive faxes or e-mail, or surf the web. Even cameras
have gone digital and now allow the photographer to preview a picture or view the actual picture prior to "exposure." 


        These
changes, along with rising consumer expectations of product functionality, are pushing manufacturers to re-evaluate their requirements for displays. Interest is
particularly high for virtual displays that are able to deliver the same (or better) clarity, resolution, and color depth that users have come to expect from their desktop systems. Up until now, most
miniature display manufacturers have concentrated on one-eighth or one-quarter VGA black and white devices. However, as OEM manufacturers indicate greater interest in miniature
displays and their ability to provide high information content, vendors are moving towards integrating displays that have full color VGA capability. 



 Market Trends for Miniature Imaging Devices  


	•
	System
components have gotten smaller leading to smaller electronic devices



	•
	Product
size and form factor are now constrained by the display size



	•
	Direct
view displays consume a major portion of a product's power budget(5)



	•
	Present
display size limits the information content on a single screen



	•
	Availability
of the contents of the web, including text and graphics



	•
	Expanding
digital bandwidth of worldwide cellular networks



	•
	Demand
pull of the mobile work force 




 Market Segments  




        The primary market segments for magnified displays are: 


        "Smart" Telephones—are digital telephones that incorporate at least one other type of information content (e.g.,
e-mail, faxes, Internet use, etc.) beyond voice. The digital telephone market in the US is still relatively new and the infrastructure is not complete. However, given the popularity of
digital "smart" telephones in Europe (estimated 1998 revenues = $604 M vs. $269 M in the US(6)), it is forecasted that the US market will grow significantly over the next 5 years
(1997-2001: 77.8% CAGR forecasted(2)). 


        Digital Cameras—have been available for a number of years; mainly concentrated at the high-end of the photography
market. In the last 12-18 months, this market has grown rapidly (estimated sales quadrupled between 1995 and 1996 and are expected to double in 1997(7)) and has moved down the price
curve to incorporate sub-$500 offerings. 




	(5)
	DisplaySearch



	(6)
	Source:
IDC, June 3, 1997 


14







 
	(7)
	Source:
The Economist, August 30, 1997 



Table 2. Critical Requirements for Magnified Displays by Segment  



	Application
 
	 	High

Resolution
	 	Picture

Quality
	 	Accurate

Color
	 	Low

Power
	 	Low

Cost
	 	Small

Size

	Smart Phones	 	•	 	•	 	•	 	•	 	•	 	•
	Digital Cameras	 	•	 	•	 	•	 	•	 	•	 	•
	Digital Camcorders	 	 	 	 	 	 	 	•	 	•	 	•
	Handheld Computers	 	•	 	 	 	 	 	•	 	•	 	•
	Medical	 	•	 	•	 	•	 	 	 	 	 	 
	Laptops	 	•	 	•	 	•	 	 	 	 	 	 
	Wearables	 	•	 	•	 	•	 	•	 	 	 	 





        Digital Camcorders—This is the most mature market segment in terms of using small
displays. Most camcorders today have a viewfinder feature. The viewfinder displays are generally 2-5" in both monochrome and color. They are direct view displays primarily based on
TFT-LCDs. 


        Handheld PCs—are becoming increasingly sophisticated as new operating systems evolve and become implemented (e.g., Windows CE
and PalmPilot Grafitti). Some systems support e-mail retrieval, fax capability, and web browsing. The Windows CE operating system now supports color. Sharp, which uses a proprietary OS
introduced the first color PDA in Japan in 1997; HP introduced its first color HPC in January 1998. 


        Medical—applications primarily involve surgical instruments like endoscopes. This segment is less price-sensitive than others,
but not particularly large. Color displays, with resolutions above SVGA, are required. 


        Laptop Computers—represent the largest potential segment for miniature magnified displays (over 14M units were forecasted to
ship in 1997(8)). For any miniature display to penetrate this market, it must be capable of delivering the same (or better) clarity, resolution, and color depth that users have come to expect from
their desktop systems. 




	(8)
	Data
extrapolated from: Frost and Sullivan: 1995; DataQuest 6/97 



        Wearable Computers—combine the functionality of laptop computers with the portability required of the new mobile products.
Many of these products have neither a full-size display screen nor a keyboard. Rather, they use voice recognition software for data input and a monocular miniature magnified display for data output.
The miniature monocular display allows an individual to use the wearable computer as a reference resource and still work within their particular function. 



 Primary Target Markets  




        Based on the potential market forecasts within these segments, Displaytech will target the "smart" telephone, digital camera, wearable computer, handheld
computer, and laptop computer segments. The camcorder viewfinder market is small (approximately 500,000 units forecasted), maturing, dominated by the Japanese, and low priced ($30/display). The
industrial/medical instrumentation market is also small and segmented. It would be quite difficult to get sufficient volume business from any one supplier. 


15







 

Table 3. Targeted Magnified-View Market Segments: Unit Forecast (000)  



	 
	 	1997
	 	1998
	 	1999
	 	2000
	 	2001

	"Smart" Phones	 	577	 	1,618	 	3,264	 	5,600	 	8,792
	Digital Cameras	 	1,500	 	2,500	 	3,500	 	5,000	 	7,000
	Notebooks and Wearables	 	14,040	 	16,567	 	19,052	 	21,339	 	23,472
	HPCs	 	3,660	 	6,005	 	8,949	 	12,464	 	16,198
	Total	 	19,777	 	26,690	 	34,765	 	44,403	 	55,462





16









   THE PROJECTION MARKET  



 Introduction  




        The worldwide market for all types of projection devices is significantly larger and more mature than the magnified display marketplace. In 1997,
1.56 million projectors were sold for $6.4 billion (for an average price per unit of $4,103). Sales are forecasted to increase to 3.8 million units and $11.2 billion in
2004(9) (for an average price per unit of $2947). The projection market is presently dominated by the rear CRT projection systems but major growth is occurring in the front- and rear-LCD
and chip-based projector market. The business segment, particularly in the portable and ultra-portable projector area, is the fastest growing segment in this market. Stanford Resources
estimates that this part of the business segment will grow to 1 million units (or 26% of total projector unit sales) by 2004.(10) 




	(9)
	Electronic
Display World, November 1997



	(10)
	Electronic
Display World, November 1997 





 Projection Market Trends  


	•
	The
mobile workforce demand for portable projectors has helped to decrease the price and weight of LCD projectors while increasing the product features (especially
brightness and resolution).



	•
	CRT-based
projectors continue to dominate the consumer rear projection market.



	•
	VGA
resolution is no longer sufficient (except for its video capability). XGA is the chosen resolution in the short-term market.



	•
	Data-only
projectors are being surpassed by video, or multimedia projectors.



	•
	A
shakeout is expected in the market as too many vendors (over 65) chase too few customers. The leading CRT-projector vendors are Sony, Barco,
Electrohome, and NEC. The leading front LCD projector vendors are Sharp, In Focus, and Proxima; with Epson leading in the XGA segment.



	•
	The
Japanese continue to focus on LCD- and chip-based portable projectors while American manufacturers focus on the Digital Light Processing (DLP)
technology of Texas Instruments. Presently 16 vendors (including a non-American vendor, Sony) have, or are developing projectors based on this technology.



	•
	Distribution
channels, particularly for the small portables, are moving away from audio-visual dealers and towards computer distributors and dealers. 




 Market Segments  




        The projection market is generally divided into a Business Segment and a Consumer Segment. The consumer segment
focuses on the "big screen television" market and is predominately rear CRT projection-based. Stanford Resources projects that CRTs will dominate this portion of the market with over an 85% market
share through 2002(11). Growth in the business segment of the projector market is driven by the need of mobile workers to make presentations while
traveling. The business segment is expected to grow at 31% annually through 2004. 




	(11)
	Electronic
Display World, September 1997 


17







 

Table 4. Projection Market Segments  



	APPLICATION
 
	 	SEGMENT
	 	CHARACTERISTIC
	 	DOMINANT

TECHNOLOGY
	 	RESOLUTION
	 	PRICE ($)

	Conference Room	 	Business	 	Fixed location	 	LCD/CRT	 	XGA, SXGA	 	9000+
	Portable Desktop	 	Business	 	Light-weight, multimedia	 	LCD	 	VGA, SVGA, XGA	 	2-3000; 3-8000
	Rear Projection Television	 	Consumer	 	Standard TV	 	CRT	 	SDTV	 	3-5000+
	Rear Projection Monitor	 	Business	 	20" + diagonal	 	CRT	 	SVGA, XGA, SXGA	 	1-3000





Table 5. Critical Requirements for Projectors by Segment(12)  



	APPLICATION
 
	 	LIGHT

EFFICIENCY
	 	HIGH

RESOLUTION
	 	PICTURE

QUALITY
	 	LOW

POWER
	 	ACCURATE

COLOR
	 	LOW COST
	 	SMALL SIZE

	Conference Room	 	•	 	•	 	•	 	 	 	 	 	 	 	 
	Multimedia Projector	 	•	 	•	 	•	 	 	 	 	 	•	 	 
	Portable Projector	 	•	 	•	 	•	 	•	 	 	 	•	 	•
	Projection TV	 	•	 	 	 	•	 	 	 	•	 	•	 	 
	Projection Monitors	 	•	 	 	 	•	 	 	 	 	 	 	 	 






	(12)
	Modified
from DisplaySearch, Flat Panel Video Analyst, April 1997. 



 Consumer Projection Market  




        The consumer segment of the projection market in the United States is growing at approximately 25% annually. The primary driving force behind this growth rate is
sales of home theatre applications. The prices for home theater products have dropped significantly in the United States (i.e., below $2000) over the past two years while the prices in the rest of the
world are still proportionately high. CRT-based systems dominate this market despite their large size and weight. In part, this is an indication of market maturity and the relative
competitive pricing and, in part, it is a result of the high price, and until recently, the lower quality, of flat panel displays. With the arrival of ATV (or HDTV), and the subsequent increase in
costs to make CRT projection units, it is anticipated that the price differential between these two technologies will decrease. 


        The
companies that are trying to compete in the FPD market along with some of their key characteristics are listed in the following chart: 



	COMPANY
 
	 	RESOLUTION(1)
	 	COLOR METHOD(2)
	 	APPLICATIONS
	 	PRODUCTION

STATUS
	 	COMPANY

STATUS

	Reflective	 	 	 	 	 	 	 	 	 	 
	

DISPLAYTECH

FLC on Si

www.displaytech.com	
 	

VGA, XGA, SXGA	
 	

Sequential	
 	

Personal viewer, projector, optical computing, digital camera, desktop monitor, smart phone	
 	

shipping volume	
 	

Privately held
	
1. NLC-on-Si	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Colorado MicroDisplay	
 	

SVGA	
 	

Sequential	
 	

eyeglasses	
 	

developer kits	
 	

Early stage venture capital funding
	

Spatialight www.spatialight.com	
 	

VGA	
 	

Sequential	
 	

Projector, HMD, optical computing	
 	

In development	
 	

Early stage publicly traded
	 	 	 	 	 	 	 	 	 	 	 



18







 

	

IBM Japan	
 	

SXGA	
 	

Sequential	
 	

Projector	
 	

In production	
 	

Major Corporation
	

S-VISION

www.svic.com	
 	

SVGA	
 	

Sequential	
 	

Projector, personal viewer	
 	

In development	
 	

Early stage public on Montreal Exchange
	

Micro-Display

www. microdisplay.com	
 	

VGA	
 	

Sequential	
 	

Personal viewer, projector	
 	

Shipping prototypes	
 	

Early stage venture capital funding
	
2. PDLC	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Raychem/Siliscape www.raychem.com www.siliscape.com	
 	

SVGA	
 	

Sequential	
 	

Pager, smart phone, PDA	
 	

In development	
 	

Venture capital funding
	

National Semiconductor/ Three-Five www.national.com www.threefive. com	
 	

SVGA

SXGA	
 	

Sequential	
 	

Personal viewer, projector	
 	

In development	
 	

Major Corporation
	
3. DMD	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Texas Instruments www.ti.com/dip	
 	

SVGA	
 	

Sequential	
 	

Projector	
 	

Volume	
 	

Major Corporation
	
4. GLV	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Silicon Light Machines www.siliconlight.com	
 	

 	
 	

Sequential	
 	

Personal viewer, projector	
 	

In development	
 	

Early stage venture capital funded
	
Transmissive	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	
5. a-Si TFT-LCD	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Hitachi

www.hitachi.com	
 	

VGA	
 	

Triads	
 	

Projector, HMD	
 	

Shipping volume monochrome and color prototypes	
 	

Major Corporation
	
6. poly-Si TFT-LCD	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Sarif

www.sarif.com	
 	

VGA	
 	

Triads	
 	

Personal viewer, projector	
 	

Target date for samples—11/97	
 	

Early Stage Privately held
	

Sony www.sel.sony.com/sem I	
 	

VGA	
 	

Triads	
 	

Projector, eyeglasses	
 	

Volume production	
 	

Major Corporation
	

Seiko-Epson www.epson.co.jp	
 	

XGA	
 	

Triads	
 	

Projector	
 	

Volume production	
 	

Major Corporation
	
7. x-Si TFT-LCD	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Kopin

www.kopin.com	
 	

1/4 VGA	
 	

Sequential	
 	

Personal viewer, smart phone, digital camera	
 	

Developer Kits, Samples	
 	

Early stage publicly traded
	
Emissive	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	
8. AMEL	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Planar

www.planar.com	
 	

VGA	
 	

 	
 	

Industrial HMD	
 	

Volume production	
 	

Publicly traded
	
9. FED	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Micron Display www.micron.com/mdt	
 	

1/4 VGA	
 	

N/A	
 	

Industrial, military HMD	
 	

In development	
 	

Funded by parent company
	 	 	 	 	 	 	 	 	 	 	 





19







 

	
10. LED	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	

Reflection Technology www.reflection.com	
 	

VGA	
 	

 	
 	

Fax reader, gaming	
 	

Volume production	
 	

Early stage
	

Motorola www.mot-sps.com	
 	

1/8 VGA	
 	

N/A	
 	

personal viewer	
 	

Engineering samples	
 	

Major Corporation






	(1)
	Resolutions—VGA-640 × 480
pixels; SVGA-800 × 600 pixels;
XGA-1024 × 768 pixels; SXGA-1280 × 1024 pixels.



	(2)
	Color
method—Sequential color creates full color on each pixel, giving a clear image. Color triads use three pixels (one red, one green, one blue) to make one color,
producing a grainy image. 


20









   NLC-ON-SI  


        In this technology, each pixel stores analog voltage to provide grayscale using twisted nematic LC. The pixel circuits are made in silicon with integrated row and
column drivers. 


        Colorado MicroDisplay (CMD)—CMD has developer kits out in the field. Their developer kit is SVGA resolution and is small with
low power consumption. CMD's materials run at 9 volts, which is not compatible with the standard 3.3 volt CMOS process, resulting in more difficult and more expensive production. They do no
in-house manufacturing, giving them limited control over production schedule and quantity. 


        Spatialight—Spatialight is a small company that has no commercial product to date. Their plan is to produce 1024 X 768
reflective SLMs targeted to various applications. 


        IBM—IBM has recently entered the miniature display market with SXGA and UXGA panels for projection applications. They are
making and selling very expensive ($20K) three panel projectors and three panel projection display engines to OEMs that cost around $6,300. The SXGA panel has a 1.3" diagonal with a
20-mm pixel pitch, and the UXGA panel has a 1.3" diagonal with 15.5 mm pixel pitch. 


        S-Vision—S-Vision is developing an XGA projector. They also plan to make display components targeted
to projection markets which would have them trying to compete with some of their potential customers. They have an SVGA developer kit for OEM evaluation. 


        MicroDisplay—In November 1997 MicroDisplay announced a plan to manufacture 200,000 miniature reflective LCD screens in
1998. They plan to sell their product into portable applications (magnified and projection). Their projection display will be initially priced at $3,000. 


PDLC  


        PDLC design encapsulates drops of LC in plastic polymer material, which is coated onto glass and bonded to a mirrored semiconductor substrate. The randomly
oriented LC capsules scatter incident light out of the image or transmit it into the image. The pixel circuits are made in Si. 



        Raychem—Siliscape is buying Raychem's PDLC displays for their OptiscapeTM display engine, Siliscape is positioning
itself as having the "widest field of view" and the "highest image clarity" in the industry. They plan to have volume delivery in mid-1998, however, we understand that PDLCs are currently
only being produced at the engineering sample level. Raychem displays suffer from a low contrast ratio (40:1). 


        National Semiconductor—In August 1997 National Semiconductor announced a partnership with Three-Five
Systems to make miniature displays. They plan to manufacture SVGA and SXGA resolutions on a custom basis. Three-Five is the largest LCD manufacturer in North America. They expect to begin
volume production in the second half of 1998. National and Three-Five are exclusive suppliers to each other for the products covered by this agreement. 


DMD  


        This is a micro electromechanical system (MEMs) where pixels are active-matrix MEM mirrors that store digital voltage and cause the mirror to tilt one way or
another. One tilt reflects incident light into the image, while the other tilt reflects it out of the image. Fast switching speed gives true sequential color and grayscale. The pixel circuits and
mirrors are made in silicon with integrated row and column drivers. 


        Texas Instruments—TI is making single-, two-, and three-panel display engines for large- area projection
applications (VGA and SVGA). Customers include In Focus, ASK, Davis, Liesegang, n-View, Proxima, AmPro, Digital Projection, Electrohome, Sony, Synelec, Projectavision and Vidikron. 


21







 



TI
is a recognized brand with an established distribution system. They have high switching speeds and the capability to use unpolarized light. However, manufacturing the DMD is
challenging—fabrication requires 18 mask steps, and the die size is large which makes the cost of the device high. The device is intrinsically large due to its complex optical system. SXGA
and higher resolutions are very hard to make, and size will increase as resolution increases. The DMD micro-mirrors only tilt +10 to -10
degrees, creating a limited acceptance angle for light. 


GLV  


        Another micro-electro-mechanical system, this technology is an active-matrix micro-mechanical diffraction grating. Each pixel stores digital voltage which causes
its micro-grating to either reflect incident light into the image or to diffract it out of the image. High switching speed gives true sequential color and grayscale, and pixel circuits are made in
silicon with integrated row and column drivers. 


        Silicon Light Machines (SLM)—Originally called Echelle, Inc., SLM was founded in 1994. They have no commercial product
to date. In the summer of 1997, SLM laid off about a third of its staff in a redirection of its effort to bring its GLV technology to market. 


a-SI TFT-LCD  


        In this AMLCD technology, each pixel stores analog voltage to provide grayscale using twisted nematic (TN) LC. It is necessary to use color triads with color
filter plate and black matrix. The row and column drivers are separate. 


        Hitachi—Hitachi makes a high cost/high priced 1" VGA monochrome LCD and a 1" VGA color LCD. Other weaknesses include high
power consumption and large circuit size. 


POLY-SI TFT-LCD  


        Like in a-Si TFT LCD each pixel stores analog voltage to provide grayscale using twisted nematic LC and color triads with color filter plate and black
matrix are necessary. Poly-Silicon technology improves amorphous silicon by enabling integrated row and column drivers. The general advantages and disadvantages of poly-Si TFT
LCD are the same as for a-Si TFT LCD except poly-Si TFT enables the use of integrated drivers. 


        Sarif—-Sarif's product plans include a 0.6" VGA panel that will be targeted toward the personal viewer market and 1.3"
SVGA & 1.7" SXGA panels targeted toward the projector market. However, they have low fill factor which causes high-resolution panels to be large, low light and power efficiency and
the necessary use of triads. 


        Sony—Sony has several display products on the market. They manufacture a variety of panels from sub-VGA
resolutions to XGA. They have several advantages: name recognition, proven manufacturing for their technology, an established distribution system and market penetration in projection. However, their
fill factor is low along with their light and power efficiencies. 


        Epson—Epson's advantages and disadvantages are very similar to Sony's. They have low fill factor and low light and power
efficiency. Epson also makes their own projector—making it difficult to remain a supplier to other OEMs in the projection display market. 


X-SI TFT-LCD  


        In x-Si technology, each pixel stores analog voltage to provide grayscale using twisted nematic LC. The pixel circuits are made in silicon, then
peeled off and transferred to glass to be transmissive. This technology is capable of sequential color and has integrated row and column drivers. It is differentiated 


22







 



from
a-Si and poly-Si because it doesn't need color triads (it does sequential color) and has no black matrix. X-Si is also capable of lower power consumption. 


        Kopin—Kopin has announced development deals with companies like Motorola, Siemens, and Fuji Film Micro Devices. Their focus is
on producing small, dense displays with the low pixel cost. They are making a 1/4 VGA device, which has a low power requirement and small size. 1/4 VGA is not an
acceptable resolution for most applications. They have problems in color with blue light—silicon absorbs blue light, so the manufacturing trade-off is between yield and color
production. Thin silicon increases the risk of breakage, and thick silicon increases blue light absorption. At optional operating temperatures, slow NLCs are barely capable of the 180 Hz switching
speeds necessary for color sequencing. As temperature falls, Kopin's liquid crystals slow down, causing flicker and blur. They have the same problems with low aperture ratio as Hitachi. Kopin's
manufacturing process is proprietary and outsourced to Unipac in Taiwan, giving limited control over production schedules and quality. 


AMEL  


        This technology consists of a phosphor stack deposited on top of a VLSI chip. Disadvantages to using AMEL include Lambertian emission hard to magnify efficiently;
high cost; unproven manufacturing; limited color gamut; needs high voltage. 


        Planar—In September of 1997 Planar announced their plan to acquire Standish Industries, a LCD manufacturer. This makes Planar
the largest independent FPD supplier in the US. It gives them more of an edge in LCDs, which have been growing at faster rates than their AMEL product. Planar also has an agreement with dpiX (a Xerox
company) to jointly develop, manufacture and sell AMLCDs into military applications. Planar's color miniature display product is a 0.75" VGA display with poor image quality. The AMEL 


        display
produces light that is weak in blue, giving a yellow-tinged display. This display requires high voltage to operate. The voltage problem is proven by the weakness in blue light
since blue phosphors are the most voltage sensitive. The RGB color filter over the AMEL makes the display dim and adds to its cost and complexity. The power required by the AMEL-RGB
display is very high (>4 watts). 


FED  


        FED is an active matrix of CRTs in which each pixel stores analog voltage that controls the electron current to the pixel's phosphor, causing it to emit light. It
uses color triads for color generation. The pixel circuits are fabricated in silicon with row and column drivers. Disadvantages include: Lambertian emission hard to magnify efficiently; poor pixel
brightness uniformity; high voltage FEDs have problems with flashover, while low voltage FEDs have problems with fast phosphor burn-in; volt drivers are large, impacting miniaturization. 


        Micron Display Technology—Micron makes the most advanced miniature FED display in the industry. It is only suitable for
magnified applications. They have a relatively wide operating temperature range (-30 to +80 C). However, the technology limits the minimum pixel size, making high resolution, small devices
unlikely. In small displays, pixel uniformity problems have produced grainy images. This problem is exacerbated by the use of color triads. As with AMEL, color production is voltage- dependent making
blue a problem. The company pulled back a private placement offering of stock of several million dollars in September 1997. Instead, they have been reabsorbed as a division of their parent
company, Micron Technology Inc. In an effort to expand their development program into the volume computer market, they are focusing much of their resources on large FEDs (12" and 17"). Their
key customers are military. 


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LED  


        In LED technology, there is a single column of LEDs, one for each display row. The LEDs are modulated in brightness while being electro-mechanically scanned to
provide a 2-D image. Disadvantages include low resolution; low grayscale and color capability; low information content; bulky packaging; row and column drivers' separate, vibration. 



        Reflection Technology—Reflection's scanned linear array technology produces an odd-looking display that is
typically red-on-black. They announced a full-color VGA product in September 1996, however, it hasn't been seen in the market. The technology is inherently
large and only suitable for magnified applications. It is sometimes considered for head-mounted products; however, the unit tends to vibrate (due to the vibrating mirror). The SLA
technology is used in Reflection's FaxView personal fax reader and was used in Nintendo's 3-D portable game system,  Virtual Boy, which was unsuccessful in
the marketplace. The company announced a manufacturing agreement with Omron Corporation in January 1998.
Omron Corporation specializes in automated manufacturing and is headquartered in Kyoto, Japan. 


        Motorola—Motorola's 1/8-VGA monochrome LED is a weak product with a substantial manufacturing
challenge. Neither color nor higher resolution is expected in the near future. However, in December 1997 Motorola announced the development of an LCD-based VirtuoVue module using
Kopin's CyberDisplay technology. The deal combines Motorola's semiconductor technology and optical units with Kopin's 1/4 VGA LCDs. They expect the first product from a third party to
hit the market mid-1998 and that volume production will begin in 1999. Plans are to offer their LED product to industrial applications in larger sizes (4-8"). They are not
exclusively committed to Kopin as a LCD supplier and are open to other development deals. 


24








   INTELLECTUAL PROPERTY  


        Displaytech has a substantial body of intellectual property, which provides a distinctive and powerful position with respect to competitors making miniature
display products. The company has a license to the family of pioneer FLC device patents that covers the use of ferroelectric liquid crystals in all practical electro-optic devices. The company also
has 24 allowed or issued patents and 23 pending patents of its own, some of which cover the liquid crystal materials used in its products, and others of which cover the essential features of
reflective, color-sequential display systems. In addition, the company maintains its manufacturing processes as trade secrets. Finally, the company has an agreement with the University of Colorado
that gives it exclusive access to new FLC related developments from the laboratories of its founders and currently licenses issued patents under this agreement on an exclusive basis. 



PIONEER PATENTS  



 Surface stabilized Ferroelectric Liquid Crystals (FLCs)  




        During the summer of 1979, Noel Clark (a company founder and current Board Member) and Sven Lagerwall discovered what had eluded other researchers for decades: a
low voltage, microsecond electro-optic effect. The discovery was enabled by a key invention: a technique called surface stabilization, to suppress the unwanted helical structure in ferroelectric
liquid crystals. This "SSFLC" invention has been protected by a family of US and foreign patents, including many US continuations, some of which have just been issued, and hence provide coverage
through the year 2013. Displaytech has worldwide exclusive licenses to all the Clark/Lagerwall SSFLC patents, except as noted below, for all "direct drive" (each pixel is operated by its own
electrical signal) devices of 4.5 cm diagonal or smaller. It has non-exclusive licenses for all other SSFLC devices. 


        The
surface-stabilized FLC device concept enables a very wide range of devices and applications. Displaytech's exclusive and non-exclusive licenses give it a large, sheltered
playing field in which it can develop and license new products inside and outside the display area. 


        Two
other license holders have rights in the area of small direct-drive SSFLC devices—Canon Inc. of Japan and FLC Innovation, a small Swedish company formed by
Lagerwall, both hold a non-exclusive license (without the right to sublicense small direct-drive devices) to all SSFLC devices. Canon has chosen to concentrate its FLC efforts solely on
producing large (>12 inches) passive matrix flat panel displays primarily for desktop computers. Displaytech is in negotiations with the Swedish company to purchase its right to make SSFLC devices. In
either case, Displaytech's own FLC materials display system patents (described below) would prevent either company from easily utilizing FLCs in miniature displays. 


DISPLAYTECH PATENTS  



 FLC Materials  




        When the SSFLC effect was discovered in 1979, there were only two known ferroelectric liquid crystal materials. Both exhibited the ferroelectric phase only at
temperatures closer to the boiling point of water than to room temperature, and both decomposed when exposed to atmospheric humidity. One of the company's founders and current Board Member, Dave
Walba, synthesized the world's first room temperature FLC material in 1985. Since then, Displaytech chemists have synthesized over 1000 new FLC compounds. By blending these compounds together in
carefully designed formulations, Displaytech has developed state-of-the-art FLC materials that exhibit all the qualities necessary to yield practical devices (such
as chemical stability, broad temperature range, fast switching, and high contrast alignment). 


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        Displaytech
patents those families of its compounds that offer exceptional performance properties. The company has 14 issued materials patents, and has 2 pending applications (not
counting foreign correspondents of US patents or applications). A representative FLC mixture used in Displaytech devices is comprised of 12-16 compounds, of which 50% are typically covered
by Displaytech patents. The remainder of the compounds is commercially available or in the public domain; Displaytech maintains the formulation of the mixture as a trade secret. 


DISPLAY SYSTEMS  


        Displaytech's miniature displays exploit the basic binary SSFLC effect driven in novel ways by a simple binary-logic CMOS backplane to display
gray-scale and full-color images on a single panel. The display panels are combined with Displaytech-designed sequential-color illuminators and magnifying optics to make
complete miniature display systems. The company has been awarded several patents on features of the display panel itself, but expects the strongest protection to come from its display system patents. 


UNIVERSITY OF COLORADO  


        In addition to the Clark/Lagerwall licenses, Displaytech has an agreement with the University of Colorado Research Corporation. Under this agreement, the company
receives the option to license (on an exclusive basis) all FLC-related inventions coming out of the laboratories of Noel Clark and David Walba (Founders, Board Members, and Professors at
the University of Colorado). 


26







 
MANAGEMENT AND BOARD OF DIRECTORS  


        The management and board of directors of Displaytech are comprised of a seasoned team of experienced individuals. They have a combination of start-up
company success, highly regarded technical talent, and significant large company experience. 


MANAGEMENT  



 Haviland Wright, Chief Executive Officer  




        Haviland Wright joined the Displaytech Board of Directors in 1994 and became CEO of the company in early 1995. Prior to joining Displaytech, he founded and led
Avalanche Development Corporation, a company innovative in the use of pattern recognition techniques for electronic publishing applications. Avalanche was sold to Interleaf and he became Interleaf's
Senior Vice President and Chief Scientist. He received his Ph.D. and MBA from the Wharton School at the University of Pennsylvania, and has held faculty positions at the University of Colorado at
Boulder and the University of Denver. 



 Mark Handschy, President and Chief Scientist  




        Mark Handschy is a founder of Displaytech and has directed the company's research since its inception. He was named President of Displaytech in 1993. Mark
received his Ph.D. in physics from the University of Colorado in 1983 where he worked with Noel Clark (another company founder) and conducted some of the first experimental and theoretical studies of
surface-stabilized ferroelectric liquid crystal electro-optic devices. At Displaytech, he has developed a number of FLC light modulators and led development of the company's LightCaster chips. 



 Richard Barton, Chief Operating Officer  




        Richard joined the Displaytech team as Chief Operating Officer in 1998 and is responsible for manufacturing, product engineering, quality, materials and FLC
mixture operating functions. Prior to joining Displaytech, Dick directed manufacturing for Planar America, a leading producer of Electroluminescent (EL) display panels. He received his BSEE from
Lawrence University and has held various manufacturing and engineering leadership positions during his career. 



 Jim Newcomb, Chief Financial Officer  




        Jim Newcomb has served as Displaytech's CFO since October of 1998. He is responsible for overseeing the finance, accounting, information systems, human resource
and administration functions. Previous to joining the Displaytech executive team, Newcomb was CFO of Fischer Imaging Corporation, a manufacturer and global distributor of medical X-ray
equipment. He also has held
significant financial posts with TECO Energy, Allied-Signal Corporation and United Technologies. Newcomb earned a BA in economics from Beloit College and an MBA from the Amos Tuck School of Business
Administration at Dartmouth College. 



 Anthony Artigliere, Senior Director of Sales and Marketing  




        Anthony Artigliere joined Displaytech in 1996 and currently directs the company's sales and marketing activities. Anthony has fifteen years experience in
electro-optic product research, development, sales, and marketing management. He received his BS in Physics from Albright College in 1983. Prior to joining Displaytech, he held positions as Sales and
Marketing Manager at Meadowlark Optics and Optics Product Manager at Melles Griot. Anthony also sits on the Board of Directors for the Colorado Photonics Industry Association (CPIA). 


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 George E. Clough, General Counsel and Secretary/Treasurer  




        George Clough joined Displaytech in 1990 as legal counsel after serving as the company's outside counsel. He is responsible for the company's legal matters and
government contracts. Prior to joining Displaytech, George was in private practice where he represented start-up and established high-technology businesses. George also served
as General Counsel for The Great Western Sugar Company, and its wholly owned subsidiaries Godchaux-Henderson Sugar Company and Northern Ohio Sugar Company which, combined, had annual sales over a half
billion dollars and factories in eight states. George received his JD from the University of Colorado. 



 Michael Wand, Vice President of Materials Research  




        Michael Wand has directed Displaytech's chemical laboratory facilities since the company's inception. Michael is the inventor of many novel FLC materials, and has
developed numerous formulations that optimize FLC properties such as switching speed, temperature range, birefringence (controls operational light wavelength) and contrast. He has been awarded 13
patents and 7 patent applications filed relating to new FLC materials. Michael received his B.S. from Rensselaer Polytechnic Institute in Chemistry and his Ph.D. in organic chemistry from the
University of Colorado, Boulder. 


BOARD OF DIRECTORS  


        Displaytech's Board of Directors is comprised of seven individuals: the CEO, three founders, and three investors. 



 Kermit Birchfield, Jr., Chairman of the Board  




        J. Kermit Birchfield Jr. has been a Director of Displaytech since 1995 and Chairman of the Board since June 1996. Kermit has been a private business
consultant since 1995. Prior to that time, he was Senior Vice President, Secretary and General Counsel for M/A-COM, Inc.; a managing director of Century Partners Incorporated, a
private investment partnership; and Senior Vice President, Legal and Governmental Affairs and General Counsel, for Georgia-Pacific Corporation, a NYSE multi-billion dollar forest products firm. Kermit
has a law degree from the University of Virginia. 



 Noel Clark, Director  




        Noel Clark is a founder of Displaytech and has been a Director of the company since its inception. Noel invented surface stabilized ferroelectric liquid crystals
(the technology utilized by Displaytech) with Sven Lagerwall, a Swedish scientist. Noel served as Chairman of the Board of Directors of Displaytech from the company's beginning until June 1996
when Kermit Birchfield was named Chairman of the Board and Noel was named to chair the company's new Technical Advisory Committee. He is a physics professor at the University of Colorado, Boulder.
Prior to joining the University of Colorado staff, Noel was research fellow and faculty member at Harvard University where he pioneered the study of suspended smectic films. Noel received his Ph.D. in
physics from the Massachusetts Institute of Technology. 



 Mark Handschy, President and Director  




        See biography in "Management." 



 Richard Hokin, Director  




        Richard Hokin has been a Director of Displaytech since 1995. He is a Managing Partner with Century Partners, a private investment partnership, in Darien, CT. He
is also Chairman of 


28







 

Intermountain
Industries, Inc., a natural gas distribution, energy marketing and production company. Richard received his AB from Princeton University. 



 Michael Markbreiter, Director  




        Michael Markbreiter has been a Director of Displaytech since 1995. Since August 1995, Michael has been a portfolio manager for private equity investments
for Kingdon Capital Management Corp. In April 1994, he co-founded RAM Investment Corp., a venture capital company. March 1993 to March 1994, he served as a portfolio
manager for Kingdon Capital Management Corp. From December 1989, he worked as executive editor for Arts of Asia Magazine. Michael graduated from Cambridge University with a degree in
Engineering. 



 David Walba, Director  




        David Walba has been a Director of Displaytech since its founding. He is a Professor of Chemistry at the University of Colorado, Boulder where he designed and
synthesized some of the first room-temperature FLC materials. David received his Ph.D. in chemistry from the California Institute of Technology and did post-doctoral work at
the University of California, Los Angeles. 



 Haviland Wright, CEO and Director  




        See biography in "Management." 


29








   APPENDIX A  


DISPLAYTECH LIGHTCASTER TECHNOLOGY  


        Displaytech panels are based on a relatively new liquid crystal display technology. They have characteristics which result in superior performance but which
depart substantially from the way older liquid crystal displays operate. The following information describes the differences and their significance for system design and shows the technical basis for
the performance advantages that Displaytech offers. 


        Displaytech
displays have a number of advantages, which stem from the spatial light modulator (SLM) structure and FLC characteristics: 


        FLC
materials switch quickly in either direction. Changing a pixel from OFF to ON happens as quickly as changing the pixel from ON to OFF. Most LC materials change slowly and the change
in one direction takes much longer than the change in the other direction. The slowness and switching asymmetry leads to image smear in most LC displays. This does not occur with fast switching FLC
materials. 


        The
FLC layer is only one micron (1mm) thick. The layer thickness of other LC technologies is often several microns thick. Additionally, the
interpixel gap between adjacent pixel mirrors is one micron wide. It is a characteristic of liquid crystal layers that the boundary between two pixels, which are in opposite states, has a width about
equal to the layer thickness. Thus in the FLC, the boundary is about one micron wide and is confined entirely within the inter-pixel gap. Consequently, the large fill factor applies even for highest
spatial frequency that the pixel array can render. In addition, the narrow inter-pixel gap greatly reduces the electrical fringing fields between adjacent pixels, which have the same state. Therefore,
the FLC material between such pixels switches into the same state; there is no light scattering caused by LC field-induced non-uniformities to reduce contrast. 


        FLC
materials switch all the way to the surface. This important fact means that the optic axis of the FLC retarder layer is uniform throughout the thickness of the layer, even close to
its boundaries. There is no twist, bend, or splay in the FLC optical properties. In other LC technologies, it is often necessary to add birefringent compensator films to correct the residual
retardance, which can spoil the device contrast. The Displaytech panel does not require this extra film. 


        FLC
materials switch in plane. The fact that both optical states have the optic axis in the plane of the layer means that Displaytech can modulate light from faster illumination beams
without the loss of contrast or shifting color. An optical system using the Displaytech panel can run at f/1.4 or faster, while a MEM panel, for example, is conventionally limited to f/2.8. 


        High
mirror reflectance. The intrinsic reflectance of the aluminum mirrors will rise during 1998 to about 90% from the current 85%. 


        High
geometric fill factor. The 1-micron interpixel gaps correctly represent the operational fill factor of 83% for current pixel designs. This is true, since the thin FLC
layer confines the LC domain walls which exist between oppositely switched pixels to the geometric gaps. Every pixel is thus switched to the selected state over its entire area. 



        High
maximum luminous flux. Since there are no photocurrent effects for SRAM display panels, the highest luminous flux is limited by the temperature rise produced at the panel by the
incident light. Prototypes have been tested at a level equivalent to over 2000 lumens on a 0.85-inch chip with no ill effects detected. Calculations indicate that it should be possible to
put as much as 8500 lumens on such a chip with minimal heat sinking of the panel. The upper limit is currently unknown. The imminent increase in metal reflectance will increase the limit still
further. 


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        Integrated
row and column drivers. The CMOS backplane is ideal for the integration of row and column drivers onto the display panel. Row and column circuitry is conveniently located
beside the panel. 


        Future
display panels will also integrate other functions; such as the control functions related to conversion from raster order data, Frame Buffer memory and a PanelLink receiver.
Customer Intellectual Property, in the form of custom data processing capability, can also be integrated onto the display chip in future. 


        The
LightCaster display uses field sequential color techniques and produces grayscale by digital pulse width modulation. These confer the following advantages: 



        The
SRAM pixel circuit is used for projection display systems, ensuring that the Display Panel is insensitive to photoconductive charge produced in the display chip by absorbed incident
light. In contrast, most competing reflective LC technologies use an analog voltage of about 5 volts/256 gray levels (or 0.05 volts) for each gray level to drive an analog LC response. Photocurrent
noise voltages can easily be hundreds of millivolts in projection applications, leading to serious limitations of the true grayscale range and/or departures from grayscale linearity. 


        The
FLC and the pixel circuit both operate in saturation. The pixel circuit, which drives the FLC, is loaded with digital data, which it stores, and the circuit is switched into
saturation. This is true of SRAM pixel circuits in which a six-transistor latch holds the data, and it is true of DRAM pixel circuits where the charge storage capacitor is fully charged to
one supply rail. The voltage thus applied to the FLC always drives it into saturation, fully switching it in either of its states. The most notable advantage gained is a very high immunity to
electrical noise of various kinds, which is difficult to achieve with the analog gray pixels used in other LC displays. 


        Grayscale
is produced with digital accuracy, since there are no on-chip D/A converters needed to drive the pixel circuits. 



        The
digital Display Panel is compatible with an all-digital display architecture incorporating a digital image source as well as digital image data transmission and the
ultimate display system. 


        Displaytech
produces its own liquid crystal materials for all of its products. This capability results in substantial advantages for the Displaytech displays. Several of these advantages
are listed below: 


        Application-specific
liquid crystal materials result in highest performance. Projection LC materials are designed to supply highest contrast, throughput, and grayscale speed at the
elevated temperatures encountered inside projection systems. 


        Materials
are formulated for high performance over the operating temperature range. The FLC controlling properties depend on cell design, manufacturing processes, and grayscale
techniques, as well as on intrinsic FLC material parameters. Custom formulation guarantees that the panel design is optimized in the context of these complex component-wide interactions. 


        FLC
materials are compatible with future CMOS foundry processes, which have finer, line design rules and lower operating voltages. FLCs can operate at these lower voltages, whereas other
LC materials will almost certainly continue to need higher operating voltage to maintain even their current slow switching. 



        Displaytech
continuously improves its materials and the way in which they are used. In particular, investigations are underway regarding the use of the bistability effect in FLCs. FLCs
also have various analog electro-optical effects, which are under study for display applications, and could be put into production should the light shielding problem, which currently plagues analog LC
displays, submit to further developments. Displaytech is also pursuing display applications of nematic LC materials and could put them into products, if their properties improve to offer potential
advantages. 


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        Displaytech
Panel fabrication is characterized by the following facts. 


        No
exotic equipment needs to be developed, built or maintained to expand production capacity. Instead, standard equipment with known supply channels and lead times facilitate predictable
and orderly expansion. 


        No
special materials are required, besides the custom FLC materials. All other materials are readily available from well-known suppliers. 


32








EXHIBIT B  


 FORM OF DESIGNATION OF RIGHTS  







CERTIFICATE OF DESIGNATION

AND DETERMINATION OF PREFERENCES OF

THE SERIES HP CONVERTIBLE

PREFERRED STOCK OF

DISPLAYTECH, INC.

a Colorado corporation  


        1.    Designation.    750,000 shares of preferred stock are hereby designated Series HP Convertible Preferred Stock
with the powers and rights and qualifications, restrictions and limitations thereof, specified in this Certificate. 


        2.    Definitions.    



        "Capital Stock" means any and all shares of capital stock of the Company (however
designated and whether voting or nonvoting), and shall include, but not be limited to, the Common Stock and the preferred stock. 



        "Capital Stock Rights"  means any warrants, options or other rights to purchase Capital
Stock or any securities convertible into Capital Stock or any participations or other interests (other security interests) in Capital Stock. 


        "Certificate"  means this Certificate of Designation and Determination of Preferences of
the Series HP Convertible Preferred Stock of Displaytech, Inc. 



        "Change of Control"  means the occurrence of any of the following events: (a) any "person"
or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only
after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or
merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other
property; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 662/3% of the directors then
still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or
adopts a plan of liquidation. 


        "Common Stock"  means the Common Stocks, par value $.001 per share, of the Company and all
shares hereafter authorized of any class of common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a
consolidation or merger of the Company with or into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event. 



        "Conversion Ratio" means, initially, a ratio of one share of Preferred Stock for one share
of Common Stock as adjusted in accordance with the provisions of Section 9. 


        "Effective Date of Conversion" means the date on which all or some part of the Series HP
Convertible Preferred Stock is converted into Common Stock in accordance with the terms hereof. 


        "Holder" of the Series HP Convertible Preferred Stock means the Person in whose name this
Series HP Convertible Preferred Stock is registered on the books of the Company. 








 




        "Indemnity" means, if a mutilated certificate evidencing shares of Series HP Convertible
Preferred Stock is surrendered to the Company, or if the Holder of such certificate claims such certificate has been lost, destroyed or willfully taken and provides an indemnity bond or agreement or
other security sufficient, in the reasonable judgment of the Company, to protect the Company and any of its officers, directors, employees or representatives from any loss which any of them may suffer
if such certificate is replaced (an "Indemnity"), then the Company shall, pursuant to such Indemnity,
issue a replacement certificate of like tenor and dated the date of such certificate. 


        "Note Conversion Price" means the per share purchase price at which the 9% Convertible
Notes of the Company were converted into Series HP Convertible Preferred Stock. 



        "Person" means an individual, a corporation, a partnership, a joint venture, an
association, a joint stock company, a trust, a business trust, a government or any agency or any political subdivision, any unincorporated organization or any other entity. 


        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of
underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the price per share of Common Stock shall be not less than $30.00 per share. 




        3.    Rank.    The Series HP Convertible Preferred Stock, with respect to dividend rights or a Liquidation Preference,
shall rank senior to all other series of preferred stock and prior to any series or class of Common Stock. Holders of Series HP Convertible Preferred Stock then outstanding shall be entitled to be
paid, dividend rights or a Liquidation Preference, before any payment shall be made in respect to any other class or series of the Company's preferred or common stock. 



        4.    Dividends.    



        Section 4.1.    Right to Dividends.    The Holders of outstanding Series HP Convertible Preferred Stock shall
be entitled to receive dividends in any fiscal year, only when, as, and if declared by the Board of Directors, out of any assets at the time legally available in cash. Such dividends may be payable
quarterly or otherwise as the Board of Directors may from time to time determine. 


        (A)  Priority of Dividend. The Company shall make no distributions or payments to the holders of shares of
Common Stock or to the holders of any other series of preferred stock unless and until dividends shall have been paid or declared and set apart upon all shares of Series HP Convertible Preferred
Stock. 




        5.    Liquidation Preference.    



        Section 5.1.  Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Company, the Holder of each share of the Series HP Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its
stockholders an amount equal to the Note Conversion Price for each share of Series HP Convertible Preferred Stock then held by such Holder (such amount being herein called the  "Liquidation
Preference") before any payment shall be made or any assets distributed to the holders of
any series or class of the Company's Common Stock and before any payment shall be made to the holders of any series of the Company's preferred stock. If the assets of the Company are not sufficient to
pay in full the payments payable to the Holders of outstanding shares of Series HP Convertible Preferred Stock upon the liquidation, dissolution or winding up of the affairs of the Company, then the
Holders of all such shares shall share ratably with all other Holders of shares of Series HP Convertible Preferred Stock in such distribution of assets in proportion to the Liquidation Preference of
the respective shares. 



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        Section 5.2.  For the purposes of this Section 5, neither the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Company nor the consolidation or merger of the Company with or into
one or more other corporations or other entities shall be deemed to be a liquidation, dissolution or winding up of the Company, voluntarily or involuntarily. 




        6.    Mandatory Conversion.    



        Section 6.1.    Conversion upon IPO.    Outstanding shares of Series HP Convertible Preferred Stock shall be
converted automatically into the number of shares of Common Stock into which such shares are convertible at the then effective Conversion Ratio, immediately upon the closing of a Qualified Public
Offering. 


        Section 6.2.    Notice of Mandatory Conversion.    Within five (5) Business Days after the date on which
outstanding shares of Series HP Convertible Preferred Stock convert into shares of Common Stock pursuant to Section 6.1 (the "Mandatory
Conversion Date"), the Company shall mail a notice of
conversion by first class mail, postage prepaid, to the Holders of shares of Series HP Convertible Preferred Stock, addressed to the Holder at its last address shown on the books of the Company. The
shares of Series HP Convertible Preferred Stock shall be converted automatically and without any further action by the Holder thereof on the Mandatory Conversion Date, whether or not such shares of
Series HP Convertible Preferred Stock are surrendered to the Company. The Company shall be obligated to issue (i) certificates evidencing the shares of Common Stock issuable upon such
conversion, and (ii) a check or cash in respect of any fractional shares of Common Stock issuable upon such conversion, as provided in Section 8 hereof, and all declared but unpaid
dividends of Series HP Convertible Preferred Stock, but not until three (3) days after the certificate evidencing the shares of Series HP Convertible Preferred Stock is either delivered to the
Company or the Holder notifies the Company that the certificate has been lost, stolen or destroyed and provides to the Company an Indemnity in respect thereto. 




        7.    Optional Conversion.    



        Section 7.1.    Conversion Right.    Subject to the terms and conditions of this Certificate, the Holder shall
have the right (the "Conversion Right"), at its option, to convert the shares of Series HP Convertible
Preferred Stock, at the Conversion Ratio in effect on the date such conversion is deemed to be effective, into fully paid and nonassessable shares of Common Stock. 


        Section 7.2.    Exercise of Conversion Right.    



        (a)   In
order to effect a conversion pursuant to Section 7.1, the Holder shall surrender the certificate or certificates evidencing the shares of Series HP Convertible
Preferred Stock to the Company and shall give written notice to the Company (a "Conversion Notice") that
the Holder elects to convert the Series HP Convertible Preferred Stock, as specified in the Conversion Notice, into shares of Common Stock. Promptly upon receipt of a Conversion Notice and surrender
of such certificate or certificates, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder (i) certificates evidencing the shares of Common Stock issuable upon
such conversion in accordance with the provisions of this Section 7, and (ii) a check or cash in respect of any fractional shares of Common Stock issuable upon such conversion, as
provided in Section 8 hereof, and all declared but unpaid dividends of Series HP Convertible Preferred Stock. 


        (b)   Each
conversion shall be deemed to have been effected on the date (the "Optional Conversion Date") on which certificate
or certificates evidencing the shares of Series HP Convertible Preferred Stock has been surrendered to the Company and a Conversion Notice with respect to Series HP Convertible Preferred Stock shall
have been received by the Company as described in Section 7.2(a). Any person in whose name any certificate or 




3







 





certificates
for shares of Common Stock shall be issuable upon conversion shall be deemed to have become the Holder of record of the shares represented thereby on the Optional Conversion Date. 




        Section 7.3.    No Other Adjustments.    Except as otherwise provided in this Section 7 and Sections 6
and 9, no payment or adjustment will be made for dividends or other distributions with respect to any shares of Common Stock issuable upon conversion of the Series HP Convertible Preferred Stock
provided herein. 




        8.    No Fractional Shares.    No fractional shares of Common Stock or scrip representing fractional shares shall be
issued upon conversion (whether optional or mandatory) of the Series HP Convertible Preferred Stock. If any fractional shares of Common Stock would, but for this Section 8, be issuable upon the
conversion of the Series HP Convertible Preferred Stock, the Company shall make a payment therefor in check or cash in an amount equal to the Fair Market Value of such fractional shares. The term
"Fair Market Value" of any share of Common Stock shall mean the fair market value of the shares of Common Stock as determined in good faith by the Board of Directors of the Company, which
determination shall be conclusive. 


        9.    Adjustment of Conversion Ratio.    



        Section 9.1.  In the event that the Company shall at any time after the date hereof: (i) declare a
dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify shares of its outstanding Common Stock into a greater number of shares,
(iii) combine shares of its outstanding Common Stock into a smaller number of shares, (iv) pay a dividend or make a distribution on its Common Stock in shares of any series of its
Capital Stock (other than Common Stock), or (v) issue by reclassification of its Common Stock shares of any series of its Capital Stock or any Capital Stock Rights, then the Conversion Ratio in
effect immediately prior to such event shall be adjusted so that the Holder of the Series HP Convertible Preferred Stock shall be entitled to receive on conversion of such shares of Series HP
Convertible Preferred Stock, the number of shares of Common Stock, other Capital Stock or Capital Stock Rights of the Company which such Holder would have owned or have been entitled to receive after
the happening of any of the events described above had the shares of Series HP Convertible Preferred Stock been converted immediately prior to the happening of such event. Any adjustment made pursuant
to this Section 9 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case
of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event referred to above shall occur. 


        Section 9.2.  If, after the date hereof, the Company issues any shares of its Common Stock (other than
shares issuable upon exercise of options or warrants heretofore or hereafter granted or issued to employees, officers or directors, in their capacities as such, of, or customers, consultants or
vendors (all in their respective capacities as such) of, the Company) or there is a Change of Control Transaction at a price per share of Common Stock that is in effect lower than the Note Conversion
Price on the date of the closing of the sale of such shares of Common Stock, then the Conversion Ratio shall be adjusted in accordance with the following formula: upon each such issuance, the number
of shares of Common Stock issuable for each share of Preferred Stock will be divided by a fraction, the numerator of which shall be such lower price and the denominator of which shall be the Note
Conversion Price in effect immediately prior thereto; provided, however, that the numerator shall thereupon become the Note Conversion Price for the next succeeding adjustment of the Conversion Ratio,
if any. 


        Section 9.3.  After adjustment of the Conversion Ratio pursuant to Section 9.1 and 9.2, the
Company shall give prompt written notice thereof to the Holder of shares of Series HP Convertible Preferred Stock, which notice shall state the Conversion Ratio resulting from such 



4







 




adjustment
and shall set forth in reasonable detail the method of calculation of such Conversion Ratio and the facts upon which such calculation was based. 




        10.    Redemption.    



        Section 10.1.    General.    The Company shall have no right to redeem all or any portion of the outstanding
shares of Series HP Convertible Preferred Stock. 




        11.    Voting Rights.    



        Section 11.1.    General.    The Holders of record of shares of Series HP Convertible Preferred Stock shall be
entitled to vote on any matters presented to the stockholders of the Company for approval, and shall vote with the holders of the Common Stock as a single class, with each share of Common Stock having
one vote with respect to each matter to be voted upon and each share of Series HP Convertible Preferred Stock having the number of votes determined in accordance with the next succeeding sentence. At
the record date for the relevant meeting presenting matters to the stockholders of the Company for approval, each share of Series HP Convertible Preferred Stock shall be entitled to the number of
votes accorded to the number of shares Common Stock for which the Series HP Convertible Preferred Stock could be converted pursuant to the provisions of Section 7 of this Certificate. 



*******



5








EXHIBIT C  


 FORM OF NOTES  







CONVERTIBLE NOTE  


THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE
SECURITIES. 


DISPLAYTECH, INC. 


CONVERTIBLE
NOTE

DUE FEBRUARY 17, 2002 



	$	 	Longmont, Colorado

February    , 1999









 

        FOR
VALUE RECEIVED, the undersigned, Displaytech, Inc., a Colorado corporation (the  "Company"), promises to pay to the order of
Hewlett-Packard Company, a Delaware corporation (the  "Purchaser"), or permitted assigns the principal sum
of                        Million dollars
($            ) on February 17, 2002, with interest thereon as provided herein. 


        1.    Purchase Agreement.    This Convertible Note (this  "Note") is one of a series of Notes that may be issued pursuant to the Note Purchase Agreement, dated as
of February 12, 1999, by and between the Company and the Purchaser (the "Purchase Agreement"). 



        2.    Definitions.    As used in this Note, the following terms have the meanings indicated: 



        "Affiliate" has the meaning ascribed to such term in Rule 405 promulgated under the Securities Act. 


        "Business Combination" means any merger, consolidation, sale of all or substantially all
assets or similar transaction. 


        "Capital Stock" means any and all shares of capital stock of the Company (however
designated and whether voting or nonvoting), and shall include, but not be limited to, the Common Stock and the Preferred Stock. 


        "Capital Stock Rights" means any warrants, options or other rights to purchase Capital
Stock or any securities convertible into Capital Stock or any participations or other interests (other security interests) in Capital Stock. 



        "Change of Control" means the occurrence of any of the following events: (a) any "person"
or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only
after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or
merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other
property; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 662/3% of the directors then
still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation. 


        "Common Stock" means the Common Stocks, par value $.001 per share, of the Company and all
shares hereafter authorized of any class of common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a
consolidation or merger of the Company with or into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event. 


        "Control" means, with respect to any specified person, the power to direct the management
and policies of such person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms
"Controlling" and "Controlled"
have meanings correlative to the foregoing. 


        "Conversion Right" has the meaning set forth in Section 6.1 hereof. 



2







 




        "Designation of Rights" means the Certificate of Designation and Determination of
Preferences of the Series HP Convertible Preferred Stock of the Company, dated February 17, 1999, creating the Preferred Stock. 


        "Event of Default" has the meaning set forth in Section 11 hereof. 


        "Holder" of this Note means the Person in whose name this Note is registered on the books
of the Company. 


        "Indemnity" has the meaning set forth in Section 13(f) hereof. 



        "Junior Stock" shall mean the currently outstanding Common Stock and the Notes, warrants
to purchase Common Stock and options to purchase Common Stock that are or may be issued or granted by the Company and are referred to in Section 8.5 of the Note Purchase Agreement, as well as
any other Common Stock and any preferred stock that ranks junior in right of preference and priority to the Series HP Convertible Preferred Stock. 


        "Maturity Date" means February 17, 2002. 



        "Minimum Convertible Portion" means such portion of the outstanding principal amount of
this Note as shall constitute 50% or more of original principal amount of this Note. 


        "Note Conversion Price" means an amount initially equal to Twenty Four dollars ($24.00) as
such amount shall be adjusted from time to time in accordance with the provisions of Section 8 hereof. 



        "Person" means an individual, a corporation, a partnership, a joint venture, an
association, a joint stock company, a trust, a business trust, a government or any agency or any political subdivision, any unincorporated organization or any other entity. 


        "Preferred Stock" means the shares of the Company's Series HP Convertible Preferred Stock,
par value $.001 per share. 


        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of
underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the price per share of Common Stock shall be not less than $30.00 per share. 


        Any
other capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement. 




        3.    Payment of Principal and Interest.    (a) Subject to Section 5 and
Section 6 hereof, the principal amount of this Note shall be due and payable on the Maturity Date. 



        (b)   The
Company promises to pay interest on the outstanding principal amount of this Note at the rate of 9% per annum. Interest on this Note shall accrue from the date of
issuance and shall be due and payable on the Maturity Date or such earlier date as the principal amount shall have been repaid or converted, as the case may be, in full. Interest shall be computed on
the basis of a 360-day year of twelve 30-day months. Interest shall be payable as specified in Section 13(a), except that if this Note is converted upon a Qualified
Public Offering pursuant to Section 5 or if the Holder of this Note exercises its Conversion Right (other than the exercise of such Conversion Right upon a Change of Control or Event of
Default) pursuant to Section 6.1, then the Company, at its option, may elect to pay the interest accrued on the principal amount of this Note being converted by issuing additional fully paid
and nonassessable shares of Preferred Stock (the "PIK Interest Shares") with the number of PIK Interest Shares to be issued to be calculated by dividing 



3







 

the
amount of interest accrued on the principal amount being converted by the Note Conversion Price then in effect. 




        4.    Prepayment.    The Company may, at its option, at any time and from time to time after
the first anniversary of the Note and prior to the Maturity Date, prepay all or 50% of the principal amount of this Note, without prepayment penalty or premium, provided that concurrently with such
prepayment the Company shall pay all accrued interest (and any other amounts due hereunder) on the principal amounts prepaid to the date of prepayment. The Company shall give Purchaser prior written
notice of its irrevocable election to prepay this Note as provided above (identifying the date of prepayment), which written notice shall be delivered to Purchaser at least sixty (60) Days
prior to any such prepayment date. Each prepayment pursuant to this Section 4 shall be applied first to cost of collection or other similar amounts due hereunder, second to accrued but unpaid
interest and then to the principal amount outstanding at the time of such prepayment, provided, however, that the Purchaser may, at its option, convert the remaining principal amount of the Note into
shares of Preferred Stock, and if any interest is also being paid, the Purchaser is entitled to receive a cash payment in accordance with Section 13(a) for the accrued interest, or at the
option of the Company, may convert such accrued interest into shares of Preferred Stock, all in accordance with Section 6. 


        5.    Mandatory Conversion.    



        5.1    Conversion upon IPO.    The outstanding principal amount of
this Note shall be converted automatically into the number of shares of Preferred Stock obtained by dividing such principal amount by the then effective Note Conversion Price, immediately upon the
closing of a Qualified Public Offering. 


        5.2.    Notice of Mandatory Conversion.    Within five
(5) Business Days after the date on which this Note converts into shares of Preferred Stock pursuant to Section 5.1 (the "Mandatory
Conversion Date"), the Company shall mail a notice of conversion by first class mail, postage prepaid, to the Holder, addressed to the Holder at its
last address shown on the books of the Company. This Note shall be converted automatically and without any further action by the Holder hereof on the Mandatory Conversion Date, whether or not this
Note is surrendered to the Company. The Company shall be obligated to issue (i) certificates evidencing the shares of Preferred Stock issuable upon such conversion, and, (ii) as provided
in Section 7 hereof, a check or cash in respect of any fractional shares of Preferred Stock issuable upon such conversion and, in accordance with Section 13(a), all accrued but unpaid
interest on the outstanding principal amount of the Note being converted, but not until three (3) days after this Note is either delivered to the Company or the Holder notifies the Company that
this Note has been lost, stolen or destroyed and provides to the Company an Indemnity in respect thereto. Anything to the contrary in this Section 5.2 notwithstanding, the Company, at its
option, may elect to pay the interest accrued on the principal amount of this Note by issuing PIK Interest Shares, with the number of PIK Interest Shares to be issued to be calculated by dividing the
amount of interest accrued on the principal amount of this Note on the Mandatory Conversion Date by the Note Conversion Price then in effect. 




        6.    Optional Conversion.    



        6.1    Conversion Right.    Subject to the terms and conditions of
this Agreement, (i) on the Maturity Date, (ii) upon the occurrence of any Event of Default, (iii) following notice of prepayment of the Note pursuant to Section 4, and
(iii) upon a Change of Control, the Holder shall have the right (the "Conversion Right"), at its
option, to convert the principal amount of this Note, or the Minimum Convertible Portion, into that number of fully paid and nonassessable shares of Preferred Stock obtained by dividing such principal
amount or Minimum Convertible Portion, respectively, by the Note Conversion Price in effect on the date such conversion is deemed to be effective. 



4







 

        6.2    Exercise of Conversion Right.    



        (a)   In
order to effect a conversion pursuant to Section 6.1, the Holder shall surrender this Note to the Company and shall give written notice, in substantially the
form of Exhibit A attached hereto, to the Company (a "Conversion Notice") that the Holder elects
to convert this Note, or the Minimum Convertible Portion as is specified in the Conversion Notice, into shares of Preferred Stock. Promptly upon receipt of a Conversion Notice and surrender of this
Note, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder (i) a certificate or certificates for the number of full shares of Preferred Stock issuable upon
the conversion of this Note, or the Minimum Convertible
Portion, in accordance with the provisions of this Section 6, and, (ii) as provided in Section 7, a check or cash in respect of any fractional shares of Preferred Stock issuable
upon such conversion and, in accordance with Section 13(a), all accrued but unpaid interest on the principal amount of this Note being converted. The foregoing notwithstanding, except if a
Holder exercises its Conversion Right upon a Change of Control or Event of Default, the Company, at its option, may elect to pay the interest accrued on the principal amount of this Note by issuing
PIK Interest Shares, with the number of PIK Interest Shares to be issued to be calculated by dividing the amount of interest accrued on the principal amount of this Note or the Minimum Convertible
Portion being converted on the Optional Conversion Date by the Note Conversion Price then in effect. If the Holder exercises its Conversion Right upon a Change of Control or Event of Default, the
election to receive PIK Interest Shares in lieu of interest accrued shall be at the option of the Holder. If less than the entire principal amount of this Note is being converted, the Company shall
issue and deliver, or cause to be issued and delivered, to the Holder, without charge to the Holder, a new Note in a principal amount equal to the unconverted principal amount of this Note and dated
the date of this Note. 


        (b)   Each
conversion shall be deemed to have been effected on the date (the "Optional Conversion
Date") on which this Note shall have been surrendered to the Company and a Conversion Notice with respect to this Note shall have been received by the
Company as described in Section 6.2(a). Any person in whose name any certificate or certificates for shares of Preferred Stock shall be issuable upon conversion shall be deemed to have become
the holder of record of the shares represented thereby on the Optional Conversion Date. 




        6.3    No Other Adjustments.    Except as otherwise provided in this
Section 6 and Section 5 and Section 8, no payment or adjustment will be made for dividends or other distributions with respect to any shares of Preferred Stock issuable upon
conversion of this Note as provided herein. 




        7.    No Fractional Shares.    No fractional shares of Preferred Stock or scrip representing
fractional shares shall be issued upon conversion (whether optional or mandatory) of the principal amount and interest, if applicable, of this Note or the Minimum Convertible Portion. If any
fractional shares of Preferred Stock would, but for this Section 7, be issuable upon the conversion of this Note or the Minimum Convertible Portion, the Company shall make a payment therefor in
check or cash in an amount equal to the Fair Market Value of such fractional shares. The term "Fair Market Value" of any share of Preferred Stock shall mean the fair market value of the shares of
Preferred Stock as determined in good faith by the Board of Directors of the Company, which determination shall be conclusive. 


        8.    Adjustment of Note Conversion Price.    (a) In the event that the Company shall
at any time after the date hereof: (i) declare a dividend or make a distribution on its Preferred Stock in shares of Preferred Stock, (ii) subdivide or reclassify shares of its
outstanding Preferred Stock into a greater number of shares, (iii) combine shares of its outstanding Preferred Stock into a smaller number of shares, (iv) pay a dividend or make a
distribution on its Preferred Stock in shares of any series of its Capital Stock (other than Preferred Stock) or in any Capital Stock Rights, or (v) issue by reclassification of its Preferred
Stock shares of any series of its Capital Stock or in any Capital Stock 


5







 



Rights,
then the Note Conversion Price in effect immediately prior to such event shall be adjusted so that the Holder of this Note shall be entitled to receive on conversion of this Note or the
Minimum Convertible Portion, the number of shares of Preferred Stock, other Capital Stock or Capital Stock Rights of the Company which such Holder would have owned or have been entitled to receive
after the happening of any of the events described above had this Note or the Minimum Convertible Portion been converted immediately prior to the happening of such event. Any adjustment made pursuant
to this Section 8 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case
of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event referred to above shall occur. 



        (b)   If,
after the date hereof, the Company issues any shares of its Common Stock (other than shares issuable upon exercise of options or warrants heretofore or hereafter
granted or issued to employees, officers or directors, in their capacities as such, of, or customers, consultants or vendors (all in their respective capacities as such) to, the Company) at a price
per share of Common Stock that is less than the Note Conversion Price in effect on the date of the closing of the sale of such shares of Common Stock, then the Note Conversion Price shall be reduced
to such lower price. 


        (c)   In
the event of a Business Combination or other Change of Control transaction where the price per share of Common Stock is less than the Note Conversion Price in effect
on the date of the closing of such Change of Control transaction, then the Note Conversion Price shall be reduced to such lower price. 



        (d)   Upon
an adjustment of the Note Conversion Price pursuant to Section 8(a), the Company shall give prompt written notice thereof to the Holder of this Note, which
notice shall state the Note Conversion Price resulting from such adjustment and shall set forth in reasonable detail the method of calculation of such Note Conversion Price and the facts upon which
such calculation was based. 


        (e)   In
case at any time: 



        (i)    the
Company shall determine to declare any dividend or make any distribution on its shares of Preferred Stock other than in shares of Capital Stock or in Capital Stock
Rights; 


        (ii)   the
Company shall determine to offer for subscription pro rata to the holders of its shares of Preferred Stock any shares of its Capital Stock or any Capital Stock
Rights; 


        (iii)  there
shall be an impending Business Combination; or 


        (iv)  there
shall be an impending voluntary or involuntary dissolution, liquidation or winding up of the Company; 




then,
in any one or more of said cases, the Company shall give written notice of the action in question to the Holder of this Note. Such notice shall describe the material terms and conditions of such
action and shall specify (y) in the case of a dividend, distribution or subscription right, the date on which the books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription right and the date as of which holders of shares of Preferred Stock of record shall participate in such dividend, distribution or subscription right, and (z) in the
case of a Business Combination, dissolution, liquidation or winding up of the Company, the date on which such Business Combination, dissolution, liquidation or winding up shall take place and the date
as of which the holders of Capital Stock shall be entitled to exchange their Capital Stock for securities or other property deliverable upon such Business Combination, dissolution, liquidation or
winding up. Such written notice shall be given at least ten (10) Business Days prior to the action in question and not less than ten (10) Business Days prior to the record date or the
date on which the Company's stock transfer books are closed in respect hereof. 



6







 

        9.    Taxes on Shares Issued.    The issuance of stock certificates upon conversion of this
Note or the Minimum Convertible Portion pursuant to Sections 5 or 6 shall be made without charge to the converting Holder for any transfer, stamp or similar tax in respect of the issuance thereof. 


        10.    Reservation of Shares.    The Company shall reserve, free from preemptive rights, out
of its authorized but unissued shares, or out of shares held in its treasury, sufficient shares of Preferred Stock to provide for the conversion, based on the Conversion Price from time to time in
effect, of the full principal amount of this Note from time to time outstanding. The Company covenants that all shares of Preferred Stock which may be issued upon conversion of this Note or the
Minimum Convertible Portion will upon issuance be duly authorized, validly issued, fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issuance
thereof. 


        11.    Events of Default.    



        (a)   Each
of the following shall constitute an "Event of Default" hereunder: 



        (i)    the
Company shall default in the payment of the principal of this Note when due; or 


        (ii)   the
Company shall default in the payment of any interest on this Note when due and such default shall continue for a period of seven (7) days after receipt of
notice from the Holder of non-payment; or 


        (iii)  the
Company does not perform or comply with any one or more of its material obligations in the Notes or this Agreement (other than a default under (i) or
(ii) above) for a period of 45 days after written notice of such default shall have been given to the Company by the Purchaser. 



        (iv)  one
or more defaults in the required payments, including Principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same
becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Company has failed to cure such default or
defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure, or notice provisions of the
Permitted Indebtedness. 


        (v)   the
Company, pursuant to or under or within any applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or like law (a) commences a voluntary
case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) makes a general assignment for the benefit of its creditors;
(d) shall generally not pay its debts when such debts become due or shall admit in writing its inability to pay its debts generally, (e) a court of competent jurisdiction (or like
entity) shall enter an order or decree under any applicable law described above that is for relief against the Company in an involuntary case or proceeding, appoints a custodian for the Company or
such other entity for all or substantially all its properties or orders the liquidation of the Company or such other entity, as applicable, and in each such case in this clause (e), the order
or decree remains unstayed and in effect for 60 days; or (f) the Company or such other entity shall take any corporate action regarding any of the foregoing. 




        (b)   The
following are the consequences of an Event of Default: 



        (i)    if
an Event of Default specified in clause (i), (ii), or (iii) of Section 11(a) above shall occur, the Holder of this Note may, at its option, by
notice in writing to the Company, declare the unpaid principal of this Note, together with all interest accrued and unpaid thereon, to be forthwith due and payable, and the same shall thereupon become
and be immediately due and payable; and 




7







 


        (ii)   if
an Event of Default specified in clause (v) of Section 11(a) above shall occur, the unpaid principal of this Note, together with all interest accrued
and unpaid thereon, shall be and become immediately due and payable; 



        (iii)  if
an Event of Default specified in clauses (i) through (v) of Section 11(a) above shall occur, the Holder of this Note shall have the Conversion
Right specified in Section 6 hereof. 




        (c)   The
rights and remedies of the Holder of this Note upon the occurrence of an Event of Default set forth above are in addition to and not in derogation of any other
rights such Holder may have under applicable law. 




        12.    Other Agreements.    The Company will not, without the prior written consent of the
Holder: 



        (a)    Agreements of the Company.    



        (i)    amend
the Designation of Rights so as to alter any existing provision relating to the Preferred Stock or the holders thereof; or 



        (ii)   authorize
or issue (x) any shares of Preferred Stock (other than upon conversion of the Notes) or (y) any shares of Capital Stock of the Company of any
other class or series other than shares of Junior Stock. 




        (b)    Agreements of the Holder.    By its acceptance hereof, the Holder agrees that its rights to payment, and the
Company's obligations hereunder are subordinate in all respects to the rights of Transamerica Business Credit Corporation
("Transamerica") under the Master Lease Agreement, dated as of July 6, 1998, by and among the
Company and Transamerica. 




        13.    Miscellaneous.    



        (a)   All
payments hereunder shall be made by wire transfer of immediately available federal funds to such account as the Holder of this Note shall specify from time to time
by notice in writing to the Company. 


        (b)   This
Note shall be governed by the laws of the State of Colorado without giving effect to principles of conflicts of laws thereof. 


        (c)   The
Company hereby waives presentment, protest, notice of non-payment, dishonor and notice of dishonor, except to the extent expressly required hereby. 


        (d)   All
notices hereunder shall be given in the manner specified for notices under the Purchase Agreement. 



        (e)   The
Company agrees to pay all costs of collection, including reasonable attorneys' fees and disbursements, in the event this Note is not paid when due. 


        (f)    If
a mutilated Note is surrendered to the Company, or if the Holder of this Note claims this Note has been lost, destroyed or willfully taken and provides an indemnity
bond or agreement or other security sufficient, in the reasonable judgment of the Company, to protect the Company and any of its officers, directors, employees or representatives from any loss which
any of them may suffer if this Note is replaced (an "Indemnity"), then the Company shall issue a
replacement Note of like tenor and dated the date of this Note. 


        (g)   The
Company shall, at its expense and upon written request of the Holder of this Note and surrender of this Note for such purpose, issue new Notes in exchange therefor
in such denominations of at least $500,000 as shall be specified by the Holder of this Note, in an aggregate principal amount equal to the then unpaid principal amount of this Note and substantially
in the form of this Note, with appropriate insertions and variations, and dated the date of this Note. 



8







 




        (h)   This
Note may not be sold, assigned, transferred or otherwise disposed of
("Transfer"), except that the Purchaser or any subsequent Holder of this Note may Transfer this Note to
an Affiliate of the Purchaser. 


        (i)    The
Company shall keep at its principal office a register in which the Company shall provide for the registration of this Note and of transfers of this Note. Upon
surrender of this Note for transfer at the principal office of the Company, duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder hereof or its attorney duly
authorized in writing, the Company shall execute and deliver in the name of the designated transferee a new promissory note in a principal amount equal to the unpaid principal amount of, and dated the
date of this Note, and otherwise in the form of this Note. 


        (j)    Amendments
and modifications to this Note may be made only in the manner provided in Section 13.5 of the Purchase Agreement. 



9







 

        IN
WITNESS WHEREOF, the Company has caused this Note to be executed by an officer thereunto duly authorized this            day of February 1999. 



	 	 	DISPLAYTECH, INC.
	

 	
 	

By:	

  
 Name:

Title:




10








EXHIBIT A  


To:
Displaytech, Inc. 


        The
undersigned holder of this Convertible Note hereby irrevocably exercises the option to convert this Convertible Note, or the portion below designated, into Series HP Preferred Stock
of Displaytech, Inc. (the "Company") as permitted by the Articles of Incorporation of the
Company, in accordance with the terms of this Convertible Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be
issued in the name of and delivered to the undersigned, unless a different name has been indicated by assignment below. If shares are to be issued in the name of a person other than the undersigned,
the undersigned shall pay all transfer taxes payable with respect thereto. 


Date:




	 	 	in whole	 	in part	 	 
	

 	
 	

 	
 	

 	
 	

Portion of principal amount of the Convertible Note to be converted:
	

 	
 	

 	
 	

 	
 	

$
	

 	
 	

 	
 	

 	
 	

Signature (for conversion only)





Please
print or typewrite Name and Address, including Zip Code, and Social Security or Other Identifying Number. 








EXHIBIT D  


 PAYMENT INSTRUCTIONS  


        (1)   Name
of Purchaser: Hewlett Packard Company 


        (2)   The
Purchase Price for the Notes shall be made by wire transfer of immediately available funds for credit to: 



	 	
 Bank Name: Colorado Community First National Bank (f/k/a Boulder Valley Bank & Trust or Mountain Parks Bank)	
 	

 
	 	
 3800 Arapahoe Avenue

Boulder, CO 80303	
 	

 
	 	
 Bank Routing Number:	
 	

091300036
	 	Online Bank:	 	COMM FST FARGO
	 	Beneficiary:	 	CCFNB-Boulder
	 	Account Number:	 	[*****]
	 	For Further Credit:	 	 
	 	Account Name:	 	Displaytech, Inc.
	 	Account Number:	 	[*****]






        (3)   All
payments on account of the Notes shall be made by wire transfer of immediately available funds for credit to: 



	 	 	Account No.	 	 	 	 	 	 
	 	 	 	 	
 [Bank]	 	 
	 	 	 	 	ABA No.:	 	 	 	 
	 	 	 	 	 	 	
	 	 










EXHIBIT E  


 FORM OF OPINION OF COUNSEL FOR THE ISSUER  








February 19,
1999 


	To:
	Hewlett-Packard
Company

3000 Hanover Street, P.O. Box 10301

Palo Alto, California 94303 



        I
am General Counsel to Displaytech, Inc., a Colorado corporation (the "Company"), and have represented the Company in connection with the sale of the Company's 9% Convertible
Notes ("Notes") pursuant to that certain Note Purchase Agreement dated February 12, 1999 between the Company and Hewlett-Packard Company (the "Agreement"), and Amendment Three to the
Shareholders' Rights Agreement (the "Shareholders' Agreement"). The Notes are convertible into shares of Series HP Convertible Preferred Stock as created by the Certificate of Designation and
Determination of Preferences dated as of February 17, 1999 (the "Certificate"). The shares of Series HP Convertible Preferred Stock are convertible into shares of the Company's common stock in
accordance with the terms and provisions of the Certificate. This opinion is being rendered to you in accordance with Section 4.1.(e) of the Agreement. Capitalized terms not otherwise defined
in this letter have the meaning given them in the Agreement. 


        In
connection with this opinion, I have examined originals, or copies of originals, or copies certified or otherwise identified to my satisfaction, of such documents, corporate records,
certificates, and other instruments as I have deemed necessary or advisable for purposes of this opinion. 


        Based
upon and in reliance upon the foregoing, and subject to the further limitations set forth below, I am of the opinion that: 


        1.     The
Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Colorado and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and proposed to be conducted. 



        2.     The
Company has all requisite legal and corporate power to execute and deliver the Agreement and the Shareholders' Agreement, to sell and issue the Notes pursuant to the
Agreement, to issue the Series HP Convertible Preferred Stock and the common stock issuable upon conversion of the Series HP Convertible Preferred Stock and to otherwise carry out and fully perform
its obligations under the terms of the Agreement and the Shareholders' Agreement. 


        3.     The
authorized capital stock of the Company consists of 5,000,000 shares of Preferred Stock, none of which is issued and outstanding, and 10,000,000 shares of Common
Stock, of which (i) 1,920,237 shares are issued and outstanding, (ii) 769,250 shares are reserved for issuance under the Company's 1988 Incentive Stock Option Plan, and for other
individual grants of stock options, and (iii) 265,744 shares are reserved for issuance upon conversion of warrants which have been, or will be, issued. To the best of my knowledge, all of such
issued and outstanding shares of common stock have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights contained in the Company's
Articles of Incorporation or Bylaws or any agreement by which the Company is bound. The Notes issued and to be issued under the Agreement are authorized obligations of the Company. The shares of
Series HP Convertible Preferred Stock issuable upon conversion of the Notes, and the shares of common stock issuable upon conversion of the Series HP Convertible Preferred Stock, when issued in
accordance with the terms of the Agreement, will be validly issued, and to the best of my knowledge, fully paid and nonassessable, free of preemptive or similar rights contained in the Company's
Articles of Incorporation or Bylaws or any agreement by which the Company is bound, provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities
laws as set forth in the Agreement and the Shareholders' Agreement. 


        4.     All
corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution and delivery of the Agreement and the
Shareholders' Agreement, the authorization, sale, issuance and delivery of the Notes, the Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, and the performance
of the Company's obligations 







 



under
the Agreement and Shareholders' Agreement have been taken. The Agreement and the Shareholders' Agreement have been duly and validly executed and delivered by the Company and constitute valid and
binding obligations of the Company, enforceable against the Company in accordance with their terms. Without in any way limiting the foregoing, the voting provisions of section 3 of the
Shareholders' Agreement constitute valid and binding obligations of the parties thereto, enforceable against them in accordance with their terms. 



        5.     The
Company is not in violation of any term of its Articles of Incorporation or Bylaws. Neither the Articles of Incorporation nor the Bylaws of the Company are in
violation of the Colorado Business Corporation Act. The execution, delivery and performance of and compliance with the terms of the Agreement and the Shareholders' Agreement, and the issuance of the
Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, do not violate any provision of the Articles of Incorporation or Bylaws of the Company, or of any
provision of any applicable federal or state law, rule or regulation.    The execution, delivery and performance of and compliance with the terms of the Agreement and the Shareholders'
Agreement, and the issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, have not resulted and will not result in any violation of, or
constitute a default under (or an event which with the passage of time or the giving of notice would constitute a default under), or be in conflict with any contract, agreement, instrument, judgment
or decree binding upon the Company which, individually or in the aggregate, would have a material adverse effect on the business or financial condition of the Company. 


        6.     There
are no actions, suits, proceedings or, to the best of my knowledge, investigations pending against the Company, its properties or its officers and directors (in
connection with the discharge of their duties as officers and directors) before any court or government agency (nor, to the best of my knowledge, is there any written threat thereof), which if
adversely determined could reasonably be expected to result in a material adverse change in the business or financial condition of the Company or which questions the validity of the Agreement or the
Shareholders' Agreement or any action taken or to be taken by the Company in connection therewith. 


        7.     Except
for the Certificate, no consent, approval or authorization of or designation, declaration of filing with any governmental authority on the part of the Company is
required in connection with the valid execution and delivery of the Agreement and the Shareholders' Agreement or the consummation of any transactions contemplated thereby, or the offer, sale or
issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof. 


        8.     Subject
to the accuracy of the Investors' representations in Section 5.2 of the Agreement, the offer, sale and issuance of the Notes, Series HP Convertible
Preferred Stock and common stock issuable upon conversion thereof, in conformity with the terms of the Agreement constitute transactions exempt from the registration requirements of Section 5
of the Securities Act of 1933, as amended. 


        In
my examination and in rendering the foregoing opinions, I have assumed and relied upon (and I have no knowledge contradicting) the following: 



        (a).  the
due authorization, execution and delivery of the Agreement and Shareholders' Agreement by all of the parties thereto other than the Company; and 


        (b).  the
absence of fraud, duress or mutual mistake of fact in connection with the transactions which are the subject of this opinion. 




        The
foregoing opinions are subject to the following: 



        (i)    When
used herein, the expression "to the best of my knowledge" means as to matters of fact that, after an examination of documents in my files, the Company's books and
records 



2







 

available
to me as of this date, and after inquiries of other executive officers of the Company, I find no reason to believe that the opinions expressed are factually incorrect. 


        (ii)   The
enforceability of the terms and provisions of the Agreement and Shareholders' Agreement is subject to (A) federal and state laws relating to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and similar laws; (B) the application of principles of equity, and the possible unavailability of the remedy of specific
performance and other forms of equitable relief, whether in an action at law or a proceeding in equity; (C) limitations on the rights of the parties imposed by common law requirements of
materiality of default and the implied covenants of good faith and fair dealing; (D) the effect of any delay occasioned by proceedings to resist enforcement of the Agreement and the
Shareholders' Agreement (including without limit any stay of enforcement in bankruptcy proceedings); and (E) a requirement imposed by certain courts that the parties act in a commercially
reasonable manner and that the parties not breach the Agreement or the Shareholders' Agreement, or violate any law in connection with enforcement of the Agreement or Shareholders' Agreement. 


        (iii)  I
express no opinion on the enforceability of those provisions of the Agreement or Shareholders' Agreement which do not have a term the length of which may be
calculated from the provisions of such agreement. 




        I
am admitted to practice law only in the State of Colorado, and the foregoing opinions are limited to matters involving the federal laws of the United States and the laws of the State
of Colorado. 


        This
opinion letter may be relied upon by its addressees only in connection with the transactions described herein. This opinion letter may not be used or relied upon by any other person
or for any other purpose whatsoever. This opinion letter speaks only as of its date, and I have no obligation to advise the addressees of any change of law, facts or conclusions that may subsequently
arise. 


Sincerely, 


George
E. Clough

General Counsel 


3








EXHIBIT F  


 FORM OF WAIVER  







WAIVER AND AGREEMENT  


        The undersigned is the holder of certain securities issued by Displaytech, Inc., a Colorado corporation (the
"Company"), and a party to the Stock Purchase Agreement (this term to include that certain Stock Purchase Agreement, dated as of March 31, 1995,
as amended, by and among the Company, J. Kermit Birchfield, Jr. and Century Partners-Dtech, L.P., that certain Stock and Warrant Purchase Agreement, dated as of October 2, 1995, as amended, by
and among J. Kermit Birchfield, Jr., Century Partners-Dtech, L.P., and Kingdon Associates, L.P., Kingdon Partners, L.P. and M. Kingdon Offshore NV, that certain Stock Purchase Agreement, dated as of
October 11, 1997, as amended, between the Company and InterWest Capital, Inc., that certain Stock Purchase Agreement, dated as of January 27, 1998, as amended, by and among the
Company and the Hewlett-Packard Company) and the Shareholders' Rights Agreement, dated as of October 2, 1995, as amended, by and among the Company,
Hewlett-Packard Company, a Delaware corporation, and certain other persons including the undersigned (the "Shareholders' Rights Agreement"), granting
certain rights to Anti-dilution Warrants and a Right of First Refusal, as such terms are defined in the Stock Purchase Agreement, and certain Registration Rights and Conversion Rights, as
such terms are defined in the Shareholders' Rights Agreement. The Company is proposing to issue and sell up to $10,000,000 aggregate principal amount of its 9% Convertible Notes (the
"Notes") to Hewlett-Packard Company (the "Purchaser"). The Notes may be converted in part or in whole
into shares of a new series of preferred stock of the Company, that is designated the Series HP Convertible Preferred Stock. In connection with the rights granted to the holder of Series HP
Convertible Preferred Stock, as described in its Certificate of Designation and Determination, the Series HP Convertible Preferred Stock may be converted into shares of Common Stock of the Company
(the "Underlying Common Stock"). Furthermore, as contemplated in the Note Purchase Agreement, to be dated on or about February 12, 1999 (the
"Note Purchase Agreement"), pursuant to which the Notes shall be issued and sold, the Shareholders' Rights Agreement will be amended to extend the
rights therein to the shares of Common Stock into which the Notes may ultimately be converted. 


        By
signing this Waiver, the undersigned agrees to the following: 


        1.     Notwithstanding
the provisions of the Stock Purchase Agreement pursuant to which the undersigned has been granted Anti-dilution Warrants by the Company, the
undersigned hereby irrevocably waives any and all rights it may have to receive or exercise such Anti-dilution Warrants in connection with the issuance and sale of the Notes, the HP
Convertible Preferred Stock and the Underlying Common Stock, as contemplated by the Note Purchase Agreement. 


        2.     Notwithstanding
the provisions of the Stock Purchase Agreement pursuant to which the undersigned has been granted a Right of First Refusal, the undersigned hereby
irrevocably waives any and all right to exercise such Right of First Refusal in connection with the issuance and sale of the Notes, the HP Convertible Preferred Stock and the Underlying Common Stock,
as contemplated by the Note Purchase Agreement. 


        3.     Notwithstanding
the provisions of Section 3.7 of the Shareholders' Rights Agreement pursuant to which the undersigned has been granted certain Conversion Rights
with respect to Common Stock, the undersigned hereby irrevocably waives any and all right to exercise such Conversion Rights only in connection with the issuance and sale of the Notes, the HP
Convertible Preferred Stock and the Underlying Common Stock, as contemplated by the Note Purchase Agreement. 


        4.     The
undersigned agrees to an amendment to the Shareholders' Rights Agreement in accordance with the terms of Section 4.1 therein to extend the rights granted
pursuant to the Shareholders' Rights Agreement to the shares of Common Stock into which the Notes may ultimately be converted in accordance with the terms and conditions of the Note Purchase
Agreement. 


        The
undersigned understands that the Company and the Purchaser will proceed with the issuance and sale of the Notes and the consummation of the transactions contemplated by the Note
Purchase Agreement in reliance on this Waiver and Agreement. 










        The
undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Waiver and Agreement, and that, upon request, the undersigned will
execute any additional documents necessary or desirable in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors, and assigns of the undersigned. 



	

 	
 	

By:	

 Name:

Title:





Accepted
and agreed as of

the date first above written: 



	DISPLAYTECH, INC.	 	 
	

By:	

 	
 	

 
	 	
 Name:

Title:	 	 










EXHIBIT G

FORM OF OPINION OF COUNSEL FOR THE PURCHASER  








*DRAFT* 


February 17,
1999 


Displaytech, Inc.

2602 Clover Basin Drive

Longmont, Colorado 80503 



	Re:
	Note
Purchase Agreement dated February 12, 1999
 Between Displaytech, Inc. and Hewlett-Packard Company  




Ladies and Gentlemen: 


        I
have acted as counsel for Hewlett-Packard Company, a Delaware corporation (AHP@), in connection with the Note Purchase Agreement, dated February 12, 1999 (the APurchase
Agreement@), between Displaytech, Inc., a Colorado corporation ("DT") and HP. This opinion is given to you pursuant to Section 4.1(e) of the Purchase Agreement. Capitalized terms used
but not defined herein have the meanings given them in the Purchase Agreement. 


        In
connection with this opinion, I have examined and relied upon such original copies of records, documents, certificates, memoranda and other instruments as in my judgment are necessary
to enable me to render this opinion. 


        In
addition, I have assumed the genuineness and authenticity of all signatures on original documents, the authenticity of all documents submitted to me as originals, the conformity to
original documents of documents submitted to me as copies thereof, the accuracy, completeness and genuineness of certificates of public officials and the due authorization, execution and delivery of
all documents by all parties other than HP where due authorization, execution and delivery are a prerequisite to the effectiveness thereof. As to any questions of fact material to this opinion, I have
relied, when relevant facts were not independently established, upon certificates and statements of officers and representatives of HP, public officials and others which I deemed reasonable and
appropriate. Except to the extent expressly set forth herein, I have not undertaken any special or independent investigation to determine the accuracy of such certificates or statements, and any
limited inquiry undertaken by me during the preparation of this opinion letter should not be regarded as such investigation. No inference as to my knowledge of the existence of facts or circumstances
should be drawn merely from my representation of HP. 


        I
do not hold myself out as being expert in any laws other than the law of the State of California and the federal law of the United States. I express no opinion herein concerning any
law other than the existing law of the State of California and the existing federal law of the United States. 


        In
addition, I express no opinion as to (a) the effect of rules of law governing specific performance, injunctive relief or other equitable remedies, (b) compliance with
the antifraud provisions of federal and state statutory or common law, (c) any tax consequences of the transactions contemplated by the Purchase Agreement, (d) any applicable laws
relating to antitrust matters or restraint of trade, (e) the enforceability of any provision providing for indemnification as it may be affected by public policy considerations or court
decisions which may limit the right of any indemnified party to obtain indemnification, or (f) the effect of applicable state or federal laws pertaining to bankruptcy, insolvency,
reorganization, readjustment of debt, arrangement, liquidation, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors or secured
parties generally. I also express no opinion to the extent that the enforceability of the Purchase Agreement may be limited by, subject to or affected by general principles of equity (including
without limitation concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or law)), may otherwise contravene public policy or
may be subject to the discretion of the court before which any proceeding may be brought. 


        I
have assumed that there are no agreements, understandings or negotiations among the parties to the Purchase Agreement that would modify the terms of the Purchase Agreement or the
rights or obligations of the parties thereunder. 










        On
the basis of the foregoing, I am of the opinion that: 


        1.     HP
has the corporate power and authority to enter into the Purchase Agreement and to perform its obligations thereunder. 


        2.     The
Purchase Agreement has been duly authorized by all necessary corporate action on its part. The Purchase Agreement has been duly executed and delivered by HP and
constitutes the legal, valid and binding obligation of HP enforceable against HP in accordance with its terms. 


        This
opinion is limited to the matters expressly set forth above, and no opinion is implied or may be inferred beyond the matters expressly so stated. I assume no obligation to advise
you of any further changes in the facts or law relating to the matters covered by this opinion. This opinion is furnished by me, as counsel to HP, solely for your benefit in connection with the
Purchase Agreement, is not to be used, circulated, quoted or otherwise referred to for any other purpose, and may not be used or relied upon by anyone else, without my prior written consent. 



	 	 	Sincerely,
	

 	
 	

*DRAFT*
	

 	
 	

Ann O. Baskins

Senior Managing Counsel










EXHIBIT H  


 SCHEDULE OF EXCEPTIONS  







EXHIBIT H  


 SCHEDULE OF EXCEPTIONS  


        The following is a schedule of exceptions ("Schedule of Exceptions") to the representations and warranties made by Displaytech, Inc. (the "Company") in
Section 5.1 of the Note Purchase Agreement (the "Agreement") dated February 12, 1999, by and between the Company and Hewlett-Packard Company ("Purchaser"), except that lists set forth
herein shall not be considered exceptions unless specifically stated as such with respect to a specific representation and warranty. By agreement of the Parties, the exceptions listed herein represent
exceptions arising only since January 27, 1998, the date the Parties entered into a Stock Purchase Agreement. 


        Section 5.1(g).    Litigation.    [*****] 


        Section 5.1(h).    Patents and Trademarks.    


	(1)
	The
Company is a party to a Technology License and Industrial Research Agreement dated June 1, 1994 with University Research Corporation (the "URC Agreement") under which the
Company has an option to exclusively license all FLC related inventions produced in the laboratories of University of Colorado Professors Noel Clark and David Walba. The Agreement was for an initial
term of three years commencing on May 1, 1994 and has been extended pursuant to Section 6 of such Agreement until April 30, 2000. A copy of the URC Agreement is attached to
Exhibit A to the HP Stock Purchase Agreement. A copy of the Company's letter extending the Agreement is attached hereto as Attachment H.1.



	(2)
	On
June 15, 1998, the Company entered into an agreement with a customer, the name of which cannot be disclosed because of confidentiality restrictions (the "1998 Agreement").
Section 7.a of the 1998 Agreement provides that, except as stated otherwise in any SOW under the 1998 Agreement, the Company shall have exclusive rights to all Intellectual Property Rights and
Inventions made or conceived or reduced to practice by the Company in the course of performing the NRE Projects. Any Intellectual Property Right made or conceived or reduced to practice by the parties
jointly in the course of performing the NRE Projects are jointly owned by the parties. Any Intellectual Property Right made, conceived or reduced to practice solely by the other party to the 1998
Agreement based upon, resulting from or arising out of any NRE Project shall be the sole property of the other party to the 1998 Agreement; provided that such party shall grant the Company a
worldwide, nonexclusive, royalty-free right and license, with the right to sublicense to such Intellectual Property Right. A redacted copy of this Agreement is attached hereto as  Attachment H.2.



	(3)
	The
Company is a party to a License Agreement dated November 30, 1998 (the "GTRC Agreement") with Georgia Tech Research Corporation ("GTRC"). The GTRC Agreement provides for
the grant to the Company of an exclusive, irrevocable (except in regard to exclusivity), nontransferable, world-wide royalty bearing license under its Intellectual Property Rights in an
invention owned by GTRC and improvements separately developed by GTRC or which are made under the Company's contract with the United States Air Force, to make, have made, use, sell, import, and offer
for sale products in the Field of Use identified therein. A redacted copy of the GTRC Agreement is attached hereto as Attachment H.3.



	(4)
	The
Company is a party to a License Agreement dated September 18, 1998 with a customer, the name of which cannot be disclosed because of confidentiality restrictions (the
"License Agreement"), which provides for the grant to the customer of a nonexclusive, nontransferable right and license to use certain trade secrets for the purpose of developing, improving,
manufacturing and selling Control Electronics to be used with the Company's FLCD's. A copy of the License Agreement, excluding exhibits to preserve confidentiality, is attached hereto as  Attachment H.4.



	(5)
	A
list of all patents, patent applications, trademarks and trademark applications issued or applied for since January 27, 1998 is set forth in  Attachment H.5 to this Schedule of Exceptions.




        Section 5.1(j)(i).    Agreements; Action—Transactions between the Company and its Officers, Directors or
Affiliates.    









	(1)
	The
exception listed in paragraph (1) of Section 5. l(h) of this Schedule of Exceptions is incorporated herein as exceptions to Section 5.1(j)(i) of the
Agreement.



	(2)
	On
March 27, 1998, a resolution was adopted by the disinterested members of the Company's Board of Directors to increase the annual fee payable to J. Kermit Birchfield, Jr. for
serving as Chairman of the Board to $100,000.00. 



        Section 5.1(j)(ii).    Agreements; Action—Material Agreements, Understandings, Instruments, Contracts or
Proposed Transactions in Excess of $100,000.00.    


	(1)
	Since
January 27, 1998, the Company has one (1) contract and one (1) grant with the following agencies or departments of the U.S. government, each of which
provides for payments in excess of $100,000 to the Company in exchange for research and development: 






	Agency
 
	 	Contract Price
	 	Amount Remaining
	 	Expiration Date

	NSF	 	$	299,967	 	$	239,974	 	6/30/00
	AF	 	$	747,459	 	$	673,549	 	8/01/00





	(2)
	Since
January 27,1998, the Company has one (1) open contract or purchase order which involves payments to the Company in excess of $100,000 as follows. A copy of the
agreement related to this exception is attached hereto as Attachment H.2. 






	Customer
 
	 	Total Order
	 	Payment Remaining

	[confidential]	 	$	3,628,000	 	$	1,997,000





	(3)
	The
Company is a party to a Manufacturing Agreement dated December 10, 1998 with Miyota Co., Ltd., a copy of which is attached hereto as  Attachment H.6, which provides for manufacturing services
for the Company's products in Japan.



	(4)
	Reference
is made to Section 5.l(h) of this Schedule of Exceptions. All exceptions listed therein are incorporated herein as exceptions to Section 5.l(j)(ii) of
the Agreement. 



        Section 5.1(j)(iii).    Agreements; Action—Dividends, Indebtedness, Loans and Disposal of Assets or
Rights.    


	(1)
	Since
January 27, 1998, the Company has five (5) open contracts or invoices which involve payments by the Company in excess of $100,000, as follows. 






	Vendor
 
	 	Description
	 	Total Order
	 	Payment

Remaining

	Karl Suss	 	SUSS MA6 ISA Mask Aligner	 	$	311,315	 	$	233,485
	ESC	 	Apollo pick & place machine; rotary bond head, spare parts kit	 	$	189,300	 	$	129,300
	Newtom	 	Spacer application machine	 	$	225,000	 	$	145,000
	Hewlett Packard	 	PTS dummy wafer, Pl mask, PTS proto wafer, Pl lot charge, Pl full mask set, charge collector	 	$	169,300	 	$	169,300
	Robinson	 	Equipment purchases for manufacturing expansion project, including filtration units, HVAC units, digital DDC controls, humidification units, cleanroom lighting, reheat coil unit and ionization unit	 	$	250,000	 	$	250,000





	(2)
	The
Company is a party to a Master Lease Agreement dated July 6, 1998 with Transamerica Business Credit Corporation, a copy of which is attached hereto as  Attachment H.7. A complete 








copy
of the exhibits and schedules to the Agreement is on file at the office of the Company and available for review by the Purchaser. 



	(3)
	The
Company is a party to four (4) Equipment Lease Agreements with Colonial Pacific Leasing. A copy of the leases are attached hereto as Attachment
H.8. 








ATTACHMENT H.5  







 

DISPLAYTECH CONFIDENTIAL  


U.S. and Foreign Issued Patents Issued Since January 27, 1998  



	Law Firm

Docket #

U.S.

ISSUED
	 	Patent/App.

Number
	 	Invention Title
	 	Inventors
	 	File Date
	 	PCT

Date
	 	Issue Date
	 	Expiration

Date
	 	Contact No.
	 	Licensed

	Shear DIS1P010	 	U.S. 5,694,147	 	A LC Integrated Circuit Display Including an Arrangement for Maintaining the LC at a Controlled Temperature	 	SG, MAH	 	4/14/95	 	 	 	12/02/97	 	12/02/2014	 	 	 	 
	

Shear DIS1P003	
 	

U.S. 5,748,164	
 	

Active Matrix Liquid Crystal Image Generator	
 	

MAH, MRM	
 	

12/22/94	
 	

06/29/96	
 	

05/05/98	
 	

05/05/2015	
 	

DAAH01-94-C-R154	
 	

1/
	

G&W 25-91A	
 	

U.S. 5,753,139	
 	

High Contrast Distorted Helix Effect Electro-Optic Devices & Tight Ferroelectric Pitch FLC Compositions Useful Therein.	
 	

MDW	
 	

05/26/95	
 	

 	
 	

05/19/98	
 	

05/19/2015	
 	

 	
 	

Excl to Hoechst for dvca > 10cm
	

Shear DIS1P004	
 	

U.S. 5,757,348	
 	

Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme	
 	

MAH, MRM, BTM	
 	

12/22/94	
 	

 	
 	

05/26/98	
 	

05/26/2015	
 	

DAAH01-94-C-R154	
 	

1/
	

Shear DIS1P005	
 	

5,808,800	
 	

Optics Arrangements Including Light Source Arrangements for an Active Matrix LC Image Generator	
 	

MAH, MRM, HC	
 	

12/22/94	
 	

 	
 	

9/15/98	
 	

 	
 	

DAAH01-94-C-R154	
 	

1/ License to the Gov dated 10/27/98
	

G&W 21-91A	
 	

5,866,036	
 	

High Tilt FLC Compounds and Compositions	
 	

MDW, RTV, DMW, SDM	
 	

02/02/94	
 	

 	
 	

2/2/99	
 	

 	
 	

 	
 	

1/





	Law Firm

Docket #

FOREIGN

ISSUED
	 	Patent/App.

Number
	 	Invention Title
	 	Inventors
	 	File Date
	 	PCT

Date
	 	Issue Date
	 	Expiration

Date
	 	Contract No.
	 	Licensed

	G&W 8-90 EPO	 	91914316.4 granted	 	FLCs Containing Dioxyldihalo Chiral Tails	 	WNT, DMW, MDW	 	07/22/91	 	 	 	05/10/95	 	 	 	ISI-8722712 (117)	 	Non/Exc to Hoechst 1/
	G&W 8-90 CA	 	2,087,592 granted	 	 	 	WNT, DMW, MDW	 	 	 	 	 	 	 	 	 	ISI-8722712 (117)	 	Non/Exc to Hoechst




1









   DISPLAYTECH CONFIDENTIAL  


U.S. Allowed Applications  



	Law Firm

Docket #

ALLOWED
	 	Patent/App.

Number
	 	Invention Title
	 	Inventors
	 	File Date
	 	PCT

Date
	 	Issue Date
	 	Expiration

Date
	 	Contract No.
	 	Licensed

	Shear DISP012	 	09/026,988	 	Display System Including a Polarizing Beam Splitter	 	MAH, NAC	 	02/20/98	 	 	 	 	 	 	 	 	 	 





U. S. and Foreign Pending Patent Applications Since January 27, 1998  



	Law Firm

Docket #

U.S.

PENDING
	 	Patent/App.

Number
	 	Invention Title
	 	Inventors
	 	File Date
	 	PCT

Date
	 	Issue Date
	 	Expiration

Date
	 	Contract No.
	 	Licensed

	Shear DISP011	 	09/025,160	 	A Continuously Viewable, DC Field Balanced, Reflective, Ferroelectric Liquid Crystal Image Generator	 	C. Crandall	 	02/18/98	 	 	 	 	 	 	 	 	 	 
	Shear DISP013	 	09/026,762	 	Beam Splitter for Use in a Display System	 	H. Chase	 	02/20/98	 	 	 	 	 	 	 	 	 	 
	Shear DIS1P003C	 	09/045,247	 	Active Matrix Liquid Crystal Image Generator	 	MAH, MRM	 	03/20/98	 	 	 	 	 	 	 	 	 	 
	Shear DIS1P004C	 	09/045,253	 	Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme	 	MAH, MRM, BTM	 	03/20/98	 	 	 	 	 	 	 	 	 	 
	Shear DIS1P005A	 	09/046,898	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator	 	MAH, MRM, HC	 	03/24/98	 	 	 	 	 	 	 	 	 	 
	Shear DIS1P017	 	 	 	Optical Correlator Having Multiple Active Components Formed on a Single Integrated Circuit	 	MJO	 	1/28/99	 	 	 	 	 	 	 	 	 	 





DISPLAYTECH CONFIDENTIAL  



	Law Firm

Docket #

FOREIGN

PENDING
	 	Patent/App.

Number
	 	Invention Title
	 	Inventors
	 	File Date
	 	PCT

Date
	 	Issue Date
	 	Expiration

Date
	 	Contract No.
	 	Licensed

	G&W 25-91CH	 	CH 9300375-4 under exam	 	High Contrast DH Effect E-optic Devices & Tight Ferroelectric Pitch FLC Compositions Used Therein	 	MDW, RTV, MAH, CE	 	02/05/93	 	 	 	 	 	 	 	(102

(108	)
)	" " "
	G&W 25-91DE	 	DE P4303335.0 pending	 	"	 	"	 	02/05/93	 	 	 	 	 	 	 	(102

(108	)
)	" " "






	1/
	All
inventions developed under a U.S. Government contract or grant are subject to the retention by the U.S. Government of a worldwide, royalty-free, nonexclusive,
nontransferable license to practice, or have practiced for or on its behalf, the subject invention for government purposes only. 


2








   Displaytech, Inc.

List Of Trademarks  


U.S. PATENT AND TRADEMARK OFFICE  



	General Information
	 	Pending Application
	 	Registration
	 	Future Filings
	 	Symbol

	Mark
 
	 	Class
	 	Description of Goods/Services
	 	Serial No.
	 	Date Filed
	 	Registration

No.
	 	Date

Registered
	 	Document to

be Filed
	 	Symbol

to be

Used

	CHRONOCHROME	 	9	 	Electronic field sequential color displays and spatial light modulators	 	75-109,479	 	May 24, 1996	 	ABANDONED	 	 	 	 	 	 
	CHRONOCOLOR	 	9	 	Electronic field sequential color displays and spatial light modulators	 	75-104,168	 	May 14, 1996	 	2,164,479	 	June 9, 1998	 	§8-15 Affidavit 6/8/2003-

6/8/2004	 	®
	DISPLAYTECH	 	9	 	Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in
the television, computer and telecommunications industries.	 	75-515,486	 	July 8, 1998	 	 	 	 	 	 	 	TM
	LIGHTCASTER	 	9	 	Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.	 	75-516,686	 	July 10, 1998	 	 	 	 	 	 	 	TM




3







 
Displaytech, Inc.

List Of Foreign Trademarks  



	General Information
	 	Pending Application
	 	Registration
	 	Future Filings
	 	Symbol

	Mark
 
	 	Country
	 	Description of Goods/Services
	 	Serial No.
	 	Date Filed
	 	Registration

No.
	 	Date

Registered
	 	Document to

be Filed
	 	Symbol

to be

Used

	DISPLAYTECH	 	Japan	 	Spatial light modulators for displays; head-mounted ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; hand-held ferroelectric liquid
crystal displays for computer and/or television and other electrical communication apparatus & instruments; ferroelectric liquid crystal projection displays for computer and/or television and other electrical communication apparatus &
instruments; and other displays for computer and/or television and other electrical communication apparatus & instruments; display shutters; color filters for displays; polarization rotators; and other electrical communication apparatus and
instruments & electronic machines, instruments and their parts; power distribution and/or control apparatus; electric waires & cables; photographic apparatus & instruments; cinematographic apparatus & instruments; optical apparatus
& instruments; measuring or testing machines & instruments.	 	 	 	Filing Date has not been received	 	 	 	 	 	 	 	TM
	

DISPLAYTECH	
 	

South Korea	
 	

Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in the television, computer and
telecommunications industries.	
 	

 	
 	

Filing Date has not been received	
 	

 	
 	

 	
 	

 	
 	

TM
	DISPLAYTECH	 	European Community	 	Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in
the television, computer and telecommunications industries.	 	 	 	Filing Date has not been received	 	 	 	 	 	 	 	TM
	LIGHTCASTER	 	Japan	 	Head-mounted ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; hand-held ferroelectric liquid crystal displays for computer and/or
television and other electrical communication apparatus & instruments; ferroelectric liquid crystal projection displays for computer and/or television and other electrical communication apparatus & instruments; and other displays for computer
and/or television and other electrical communication apparatus & instruments; and other electrical communication apparatus and instruments & electronic machines, instruments and their parts; power distribution and/or control apparatus;
electric waires & cables; photographic apparatus & instruments; cinematographic apparatus & instruments; optical apparatus & instruments; measuring or testing machines & instruments.	 	 	 	1/5/99	 	 	 	 	 	 	 	TM
	LIGHTCASTER	 	South Korea	 	Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.	 	 	 	Filing Date has not been received	 	 	 	 	 	 	 	TM
	LIGHTCASTER	 	European Community	 	Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.	 	 	 	Filing Date has not been received	 	 	 	 	 	 	 	TM




4








EXHIBIT I  


 SCHEDULE 8.1  







SCHEDULE 8.1

CURRENT INDEBTEDNESS  



	Description
 
	 	Equipment

Leased
	 	Original

Lease

Amount
	 	Principal

Remaining

	Colonial Pacific—Capital Equipment Lease—# 1	 	UV Meter, Vacuum Oven	 	66,673.33	 	47,234.50
	Colonial Pacific—Capital Equipment Lease—# 2	 	Temp/Humidity Chamber	 	18,436.85	 	11,099.44
	Colonial Pacific—Capital Equipment Lease—# 3	 	Chromotagraph Sampler, Misc	 	66,695.78	 	47,803.94
	Colonial Pacific—Capital Equipment Lease—# 4	 	Microscope, Lens Tester	 	43,197.42	 	33,583.11
	Transamerica—Capital Equipment Lease—# 1	 	HPLC, Bond Tester	 	182,849.85	 	149,004.92
	Transamerica—Capital Equipment Lease—# 2	 	Visual, Intradocs, Various	 	206,214.96	 	168,048.73
	Transamerica—Capital Equipment Lease—# 3	 	Autobreaker	 	119,057.55	 	105,614.17
	Transamerica—Capital Equipment Lease—# 4	 	Calorimeter, Various	 	141,537.46	 	129,021.67
	Transamerica—Capital Equipment Lease—# 5	 	Wire Bonder	 	199,615.00	 	181,963.64
	Transamerica—Capital Equipment Lease—# 6	 	Nanospec and Spectrometer	 	439,790.90	 	422,644.37
	Transamerica—Capital Equipment Lease—# 7	 	Yield Up Wafer Dryer	 	110,870.00	 	106,570.13
	TOTAL	 	 	 	1,594,939.10	 	1,402,588.62











 
 

AMENDMENT NO. 1 TO
  NOTE PURCHASE AGREEMENT    
    


        This Amendment No. 1 to Note Purchase Agreement ("Amendment No. 1") is entered into as of
February 19, 1999 by and between Displaytech, Inc., a Colorado corporation (the "Issuer" or the
"Company") and Hewlett-Packard Company, a Delaware corporation (the "Purchaser"), and amends the Note
Purchase Agreement dated February 12, 1999 between the Issuer and the Purchaser (the "Purchase Agreement"). 


        The
Purchase Agreement is hereby amended as follows: 



        1.     Section 1.1
shall be amended to add the following definition between the definitions of "First Disbursement Note"
and "GAAP": "Fourth Disbursement Note" has the meaning set forth in Section 2.2(a) herein." 


        2.     Section 2.2
is hereby amended in its entirety to read as follows (changes underlined): 



"Section 2.2 Forms and Dating of Notes.


        (a)   The
Notes shall be in substantially the form of Exhibit C attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any
applicable law. The Notes shall be issued in the Principal amounts of $2,000,000, $3,000,000,
$3,000,000, and $2,000,000 (the "First Disbursement Note", the "Second Disbursement Note", the
"Third Disbursement Note" and the "Fourth Disbursement Note," respectively). 



        (b)   On
the First Closing Date, the Issuer agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, the First Disbursement Note. The
First Disbursement Note shall be dated as of the First Closing Date. As soon as practicable after the First Closing and provided that the Issuer has received written consent of
Transamerica Business Credit Corporation to the issuance of additional debt by the Issuer, the Issuer agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase from the Issuer,
the Second Disbursement Note. Subject to the terms and conditions of Section 2.3 of this Agreement, the Issuer agrees to issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Issuer, the Third Disbursement Note and the Fourth Disbursement
Note (collectively, the Conditional Notes"). Each Conditional Note shall be dated as of its respective Closing Date." 




        3.     Section 3.1
is hereby amended by adding the following sentence to the end of that paragraph: "After the conditions of Section 2.2(b) have been met by the
Issuer, the closing of the issuance and sale of the Second Disbursement Note shall be held at the offices of the Issuer, in Colorado, at a date and time specified by the Issuer or at such other place
or date and time as the parties shall mutually agree. 


        4.     Section 8.6
is hereby amended in its entirety to read as follows (changes underlined): 



"Section 8.6. 


        (a)   Except
as set forth in Section 8.6(b) below with respect to a Qualified Public Offering: 



        (i)    Prior
to the earlier of the issuance of the Fourth Disbursement Note under this Agreement or the delivery of an
Unfavorable Responsive Notice under Section 2.3 of this Agreement, the Issuer will not sell any further equity interest in itself, other than the Notes pursuant to this Agreement or pursuant to
currently existing rights to purchase Current Outstanding Common Stock or rights granted under the New Plan or the Issuer's 1988 Incentive Stock Option Plan (which expired on October 11, 1998). 













        (ii)   The
Issuer will not enter into substantive negotiations (which term shall not include preliminary discussions prior to the execution of a letter of intent or similar
document or, if there shall be no letter of intent or similar document, the entry into substantive negotiations of a draft definitive agreement) to offer to sell or sell any such further equity
interest until the earlier to occur of the Subsequent Closing of the Third Disbursement Note or the delivery of an Unfavorable Responsive Notice;
provided, however, the Issuer may enter into such substantive negotiations with, and may offer to sell and sell such further equity interest to, any Investor at any time if the Purchaser and the
Investors are informed of all related discussions promptly and are offered the opportunity to purchase such further equity in the Issuer, such purchase to be in accordance with the terms of the
relevant Stock Purchase Agreement if and to the extent such Stock Purchase Agreement is applicable in accordance with its terms. 



        (iii)  The
Purchaser and the Investors will participate in the purchase of such further equity interest, if they elect to do so, in proportion to the number of shares of
Common Stock (treating the Notes and any other securities of the Issuer held by them as if converted or exercised for Common Stock in accordance with the terms thereof) taken as a percentage of' the
total number of shares of Common Stock then issued or so issuable then owned by the Purchaser and each of the Investors, or as the Purchaser and the Investors may otherwise designate. 




        (b)   The
provisions of Section 8.6(a) above to the contrary, notwithstanding, the Issuer may: 



        (i)    Enter
into substantive negotiations at any time with respect to a Qualified Public Offering. 


        (ii)   File a
Registration at any time with respect to a Qualified Public Offering. 


        (iii)  Effect
a Registration at any time after the earlier to occur of the Subsequent Closing of the Third Disbursement Note
with respect to a Qualified Public Offering or delivery of an Unfavorable Responsive Notice under Section 2.3 hereof and take all steps that are necessary or appropriate to consummate the
transactions contemplated by such Registration." 






        Capitalized
terms used herein and not defined shall have the meanings set forth in the Purchase Agreement. 


        Except
as amended herein, the terms and conditions in the Purchase Agreement remain in full force and effect. 


        IN
WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be executed by their respective employees thereunto duly authorized as of the day and year first above
written. 



	 	 	DISPLAYTECH, INC.
	

 	
 	

By	

/s/  MARK A. HANDSCHY      

	 	 	 	Name: Mark A. Handschy
	 	 	 	Title: President
	

 	
 	

HEWLETT-PACKARD COMPANY
	

 	
 	

By	

/s/  ANN O. BASKINS      

	 	 	 	Name: Ann O. Baskins
	 	 	 	Title: Assistant Secretary and Senior Managing Counsel











 
 

SECOND AMENDMENT TO
  NOTE PURCHASE AGREEMENT    
    



        This Second Amendment to Note Purchase Agreement (this "Amendment") is entered into as of February 11, 2003
(the "Effective Date") by and between Displaytech, Inc., a Colorado corporation (the "Issuer" or
the "Company") and Hewlett-Packard Company, a Delaware corporation ("HP" or
"Purchaser"). 


        WHEREAS,
the Company and HP are parties to a certain Note Purchase Agreement dated as of February 12, 1999, as amended by a certain Amendment No. 1 to Note Purchase
Agreement between the Company and HP dated as of February 19, 1999 (collectively, the "Note Purchase Agreement"); and 


        WHEREAS,
the parties desire to further amend the Note Purchase Agreement in the manner set forth herein. 


        NOW,
THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 


1.    AMENDMENTS OF PROVISIONS OF NOTE PURCHASE AGREEMENT


        a.     Amendment to Section 1.1. Section 1.1 of the Note Purchase Agreement is hereby amended by
(i) deleting therefrom the definitions of the terms "Affiliate, "Change of Control", "Designation of Rights", "Interest", "Maturity Date", "Note", "Preferred Stock", "Qualified Public
Offering", "Registrable Securities" and "Shareholders' Rights Agreement", and (ii) substituting in lieu thereof the definitions of such terms, and such additional terms, as are set forth below: 



        "Affiliate", when used with respect to any Person, means (i) if such Person is a corporation, any officer or director thereof and
any Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any equity security (within the meaning of the
Exchange Act) thereof, and, if such beneficial owner is a partnership, any general partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common
control with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (ii) if such Person is a partnership, any
general or limited partner thereof, and (iii) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person. For purposes of this
definition, "control"
(including the correlative terms "controlling", "controlled by" and "under common control with"), with respect to any Person, shall mean possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 


        "Business Combination" means any merger, consolidation, sale of all or substantially all assets or similar transaction. 


        "Capital Stock" means any and all shares of capital stock of the Company (however designated and whether voting or nonvoting), and shall
include, but not be limited to, the Common Stock and the Preferred Stock. 



        "Capital Stock Rights" means any warrants, options or other rights to purchase Capital Stock or any securities convertible into Capital
Stock or any participations or other interests (other than security interests) in Capital Stock; 


        "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act) other than holders of the Company's Series E-1 Senior Preferred Stock is or becomes the"beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage of time, upon the 








 




happening
of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) any consolidation of the Company with, or merger of the Company into,
any other person, any merger of another person into the Company or any other Business Combination involving the Company which results in the holders of the Company's Capital Stock immediately prior to
giving effect to such transaction owning shares of capital stock of the surviving corporation in such transaction representing (x) fifty percent (50%) or less of the total voting power of all
shares of capital stock of such surviving corporation entitled to vote or (y) fifty percent (50%) or less of the total value of all capital stock of such surviving corporation; (c) the
sale of all or substantially all of the operating assets of the Company; (d) at any time during any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new directors (i) whose election by such Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 662/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was
previously so approved or (ii) designated by the same Company shareholders that designated such initial individuals (and their successors) as directors) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office (regardless of the actual size of the Board of Directors of the Company); or (e) the Company is liquidated or dissolved or
adopts a plan of liquidation. 


        "Designation of Rights" means the Amended and Restated Certificate of Designation and Determination of Preferences of the Series D
Convertible Preferred Stock of the Issuer, filed with the Secretary of State on February 11, 2003, in substantially the form attached hereto as Exhibit 2. 



        "Indebtedness Limit" has the meaning set forth in Section 8.1(b). 


        "Interest" means, with respect to any Note, the amount of all interest accruing on such Note, including all interest accruing subsequent
to the occurrence of any events specified in Section 9.1(d) which would have accrued but for any such event, whether or not such claims are allowable under applicable law. 


        "Maturity Date" means February 19, 2008. 



        "Note" or "Notes" means the Amended and Restated Convertible Note that is issued under this Agreement, substantially in the form of
Exhibit 1 attached hereto. 


        "Preferred Stock" means the shares of the Company's Series D Convertible Preferred Stock, par value $.001 per share, or the shares
of any class or series of Capital Stock or Capital Stock Rights into which the Note shall hereafter become convertible, in accordance with its terms, as a result of reclassification of the Company's
Series D Convertible Preferred Stock or otherwise. 


        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts, commissions and other expenses, are at least
$25,000,000.00, and (ii) the price per share of Common Stock sold in such offering is not less than 125% of the HP Common Price. As used herein, "HP Common Price" means the amount determined by
dividing (x) the aggregate outstanding balance of unpaid Principal and accrued interest under the Note as of the time such offering is consummated by (y) the number of shares of Common
Stock into which such aggregate outstanding balance of Principal and accrued interest is at that time convertible pursuant to the terms of the Note (whether directly or, if then required by the
provisions of the Note, following the prior conversion of the Note into shares of Preferred Stock). 


        "Registrable Securities" means the Common Stock acquired or acquirable by the Investors (as defined in the Shareholders' Rights Agreement
defined below) and any Common Stock issued as a dividend or distribution with respect to or in exchange for such Common Stock, including, without 



2







 




limitation,
any Common Stock acquirable by Purchaser upon conversion of the shares of Preferred Stock issuable to Purchaser upon conversion of the Note; excluding, however, (a) any Common Stock
that would otherwise be Registrable Securities transferred in a transaction in which the Investors' rights under Section 3 of the Amended and Restated Shareholders' Rights Agreement
("Shareholders' Rights Agreement") are not properly assigned pursuant to Section 3.12 of such Shareholders' Rights Agreement, and (b) any Common Stock that would otherwise be Registrable
Securities, if such securities, in the hands of the Holder thereof (A) are no longer restricted securities under the Securities Act or (B) may be sold, together with all other Common
Stock (whether Registrable Securities or otherwise) held by such Holder, in any three-month period, because the volume limitations of Rule 144 are not applicable or otherwise. 


        "Shareholders' Rights Agreement" means the Amended and Restated Shareholders' Rights Agreement between and among the Company and certain
of its shareholders dated as of July 30, 2001, as amended April 9, 2002 and February 11, 2003. 




        b.     Amendment to Section 5. Section 5 of the Note Purchase Agreement is hereby amended by adding thereto the
following Section 5.3: 



        Section 5.3 The Issuer hereby makes to Purchaser, as of February 11, 2003, the representations and warranties set forth on
Exhibit 3 to the Second Amendment to this Agreement, as such representations and warranties are qualified by the Schedule of Exceptions attached thereto. Notwithstanding any provision of this
Agreement to the contrary, each capitalized term contained in Exhibit 3 that is not otherwise defined in this Agreement or in Exhibit 3 shall have the meaning ascribed to such term in
that certain Stock Purchase Agreement dated February 11, 2003 among the Company, Fleming US Discovery Fund III, L.P., Fleming US Discovery Offshore Fund III, L.P. and InterWest
Capital, Inc. (the
"Series E SPA"), a true and complete copy of which has been furnished to Purchaser and its counsel on or prior to the date of this Agreement. The
representations and warranties of the Company and Purchaser contained in this Agreement (including, without limitation, those set forth in Exhibit 3) or in any document or certificate delivered
pursuant hereto shall survive the execution and delivery of this Agreement and the Note, and shall not be affected by any investigation of the subject matter thereof made by or on behalf of the
Purchaser or the Issuer. 




        c.     Amendment to Section 7.1(b). Section 7.1(b) of the Note Purchase Agreement is hereby amended by deleting
therefrom the words "Conversion Ratio" and substituting in lieu thereof the words "Conversion Price". 


        d.     Amendment to Section 8.1(b). Section 8.1(b) of the Note Purchase Agreement is hereby deleted in its entirety
and replaced with the following Section 8.1(b): 



        "(b) Notwithstanding
the provisions of Section 8.1(a), the Issuer and its Subsidiaries may incur Indebtedness in such amounts and of such type and description,
subject to such restrictions and limitations, as are set forth below ("Permitted Indebtedness"): 



        (i)    Until
the Note has been paid in full, the Company and its Subsidiaries shall at no time have Indebtedness exceeding, in the aggregate, Thirteen Million Dollars
($13,000,000.00) (the "Indebtedness Limit"); provided, that upon request of the Company and with the written consent of Purchaser, which consent shall not be unreasonably withheld, the Indebtedness
Limit shall be increased to Fifteen Million Dollars ($15,000,000.00). For purposes of determining whether the Indebtedness Limit has been exceeded, "Indebtedness" shall include any and all
Indebtedness of the Company and its Subsidiaries (as defined in Section 1.1) whether now existing or hereafter incurred, including, without limitation, all outstanding Principal on the Note,
but excluding (A) accrued interest on the Note, (B) indebtedness in an aggregate principal amount of Two Million Dollars ($2,000,000) or less under promissory notes 




3







 


issued
by the Company to certain of its investors pursuant to the Displaytech, Inc. Note Purchase Agreement between the Company and such investors dated December 10, 2002, which
promissory notes will be converted into Series E-1 Senior Preferred Stock concurrent with the execution of this Amendment, and (C) Indebtedness of the Issuer or any
Subsidiary represented by letters of credit for the account of the Issuer or such Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary course of business; 


        (ii)   To
the extent Indebtedness is secured: (x) such secured Indebtedness shall be limited to equipment financing and working capital financing reasonably required in
connection with the Company's business; (y) such secured Indebtedness shall not be subject to the provisions of Section 8.2, but shall be subject to the provisions of Section 8.3
of this Agreement, which provision shall be applicable to Indebtedness of
any Subsidiary in addition to Indebtedness of the Company; and (z) the full amount of such Indebtedness shall be included as "Indebtedness" for purposes of determining whether the Indebtedness
Limit has been exceeded; 


        (iii)  All
unsecured Indebtedness shall be subordinated to the Note as further described in this Section 8.1(b)(iii). At least thirty (30) days prior to
executing an agreement with any person or entity (the "Creditor") whereby such Indebtedness is or may be incurred (the "Creditor Agreement"), the Company shall deliver to Purchaser written notice of
its intent to enter into such Creditor Agreement together with a copy of the proposed Creditor Agreement. Upon request of Purchaser at any time within such thirty (30) day period, the Company
shall execute and cause the Creditor to execute any subordination agreements or other documents reasonably deemed necessary or desirable by Purchaser in order to effectuate the provisions of this
subparagraph (iii). In any event, the Creditor Agreement shall contain provisions pursuant to which the Company and the Creditor acknowledge and agree that: 



        A.    The
Creditor's priority and right of payment as to all indebtedness which may thereafter become owing by the Company to the Creditor ("Creditor Indebtedness") are
subordinate to payment of the Note; 


        B.    Upon
any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization or arrangement with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation or any other marshaling of the assets and liabilities of the Company, or in the event any
indebtedness of the Company to the Creditor shall become due and payable, whether at maturity, upon acceleration or otherwise: (i) no amount shall be paid by the Company or accepted or retained
by Creditor, whether in cash or property, in respect of the principal of or interest on such Creditor Indebtedness at the time outstanding, unless and until the full amount of all principal and
accrued interest under the Note shall have been paid in full, whether or not such principal or accrued interest under the Note is then due and payable; (ii) if any such amount is received by
Creditor on account of or with respect to any of the subordinated Indebtedness, the Creditor shall forthwith pay over same to Purchaser, and until so paid, any such amount shall be held by Creditor in
trust for Purchaser and shall not be commingled with other funds or property of Creditor; and (iii) no claim or proof of claim shall be filed with the Company by or on behalf of the Creditor
which shall assert any right to receive any payments in respect of the principal of and interest on the Creditor Indebtedness except subject to the payment in full of all principal and accrued
interest under the Note; 


        C.    The
Creditor agrees upon request to execute and deliver to the Purchaser such subordination agreements and other documents and instruments as may reasonably be 





4







 






requested
by Purchaser in order to effectuate the provisions of the Creditor Agreement; and 


        D.    Purchaser
is a third-party beneficiary of the Creditor Agreement, and may directly enforce the obligations of Creditor under such agreement; and 




        (iv)  No
secured Indebtedness shall be incurred in favor of any officer, director or shareholder of the Company or any of its Subsidiaries, or in favor of any Affiliate of
the Company or of any such officer, director or shareholder. 





        e.     Amendment to Section 8.4. Section 8.4 of the Note Purchase Agreement is hereby deleted in its entirety and
replaced with the following Section 8.4: 



        "8.4 Until
the Note has been paid in full, or converted pursuant to Article 5 or Article 6 of the Note, except with the prior written consent of the Purchaser,
which consent Purchaser may grant or withhold in its sole discretion, the Issuer will not directly or indirectly: 



        (i)    redeem,
repurchase or otherwise acquire any shares of Capital Stock or Capital Stock Rights, unless such redemption, repurchase or acquisition is effected solely through
the exchange of one class or series of outstanding Capital Stock or Capital Stock Rights for another such class or series, and does not involve the payment of cash or any other form of property; 



        (ii)   declare,
set aside or pay any dividends on, or make any payments or distributions of cash or property on or with respect to, any class or series of Capital Stock or
Capital Stock Rights (including, without limitation, distributions arising from a Change of Control or in connection with the liquidation, dissolution or winding up of the Issuer), unless such
dividend, distribution or payment is made solely in the form of shares of Capital Stock or Capital Stock Rights and does not involve the payment or distribution of cash or any other form of property; 


        (iii)  change
the dollar amount of the liquidation preference of the Company's Series D Convertible Preferred Stock from its existing $100.00 level, or, except as
provided in Section 8(a) of the Note with respect to stock splits, reclassifications, combinations and the like, change the conversion price of $5.50 per share of the Company's Series D
Convertible Preferred Stock; 


        (iv)  change
the dollar amount of the liquidation preference of the Company's Series B Convertible Preferred Stock from its existing level of $100.00 per share, or
except with respect to stock splits, reclassifications, combinations and the like of a type described in Section 8(a) of the Note) change the conversion price of $7.11 per share of the
Company's Series B Convertible Preferred Stock; 


        (v)   alter
the relative seniority (as to liquidation preference, dividends and in all other respects as is set forth in the Designation of Rights) of the Company's
Series D Convertible Preferred Stock over the Company's Series B Convertible Preferred Stock; 


        (vi)  amend
or modify in any manner the rights, preferences, privileges or restrictions applicable to the Company's Series E-D Preferred Stock or
Series E-B Preferred Stock unless the same amendment or modification is made with respect to the rights, preferences, privileges or restrictions applicable to the Company's
Series D Convertible Preferred Stock or the Company's Series B Convertible Preferred Stock, respectively; or 



        (vii) authorize,
create (by reclassification or otherwise) or issue any class or series of Capital Stock or Capital Stock Rights if such authorization, creation or issuance
would result in or, by the terms of the documents governing such Capital Stock or Capital Stock Rights, 




5







 





permit
any of the acts or transactions set forth in subsections (i) through (vi) of this Section 8.4(b). 





        f.      Amendment to Section 8.5. Section 8.5 of the Note Purchase Agreement is hereby deleted in its entirety. 


        g.     Amendment to Section 8.6. Section 8.6 of the Note Purchase Agreement is hereby deleted in its entirety. 


        h.     Amendment to Section 9.1. Section 9.1 of the Note Purchase Agreement is hereby deleted in its entirety and
replaced by the following Section 9.1: 



        "Section 9.1. An "Event of Default" means any of the following events: 


        (a)   the
Issuer shall fail to make any payment of Principal or interest when due under the Note, and such failure continues for a period of seven (7) days after
receipt of written notice of nonpayment from the Holder in accordance with section 13.2 hereof; 


        (b)   the
Issuer does not perform or comply with any one or more of its material obligations in the Note or this Agreement (other than a default under (a) above) for a
period of forty five (45) days after written notice of such default shall have been given to the Issuer by the Holder; 


        (c)   one
or more defaults in the required payments, including Principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same
becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Company has failed to cure such default or
defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure, or notice provisions of the
Permitted Indebtedness; 


        (d)   an
involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of the
Company or of a substantial part of its property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (B) the appointment of a receiver, trustee, custodian, sequestrator, conservator or a similar official for the Company or for a substantial part of its property or
assets, or (C) the winding up or liquidation of the Company; and such proceeding or petition shall continue undismissed for sixty (60) days, or an order or decree approving or ordering
any of the foregoing shall be entered; 


        (e)   the
Company shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (B) consent to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding for the filing of any petition described in paragraph (d) of this Section 9.1, (C) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company, or for a substantial part of its property or assets, (D) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (E) make a general assignment for the benefit of creditors, (F) become unable, admit in writing its inability or fail generally to pay its debts as
they become due or (G) take any action for the purpose of effecting any of the foregoing; 


        (f)    the
Company breaches any provision of that certain Mutual Cooperation Agreement between the Company and Purchaser dated as of the date hereof, as same may be amended
from time to time, which breach is not cured within thirty days after written notice to the Company; or 



6







 




        (g)   any
representation, warranty, certification or statement made by or on behalf of the Company in this Agreement (including, without limitation, in the Second Amendment to
Note Purchase Agreement) or the Note, or in any certificate or other document delivered pursuant hereto or thereto, shall have been incorrect in any material respect when made." 



        i.      Amendment to Section 10. Sections 10.1 and 10.2 of the Note Purchase Agreement are hereby deleted in their entirety
and replaced with the following Sections 10.1 and 10.2: 



        "Section 10.1. The Note is convertible into shares of Preferred Stock according to the terms and conditions contained therein. 


        Section 10.2. Any Preferred Stock issuable upon conversion of the Note may be converted by Purchaser into shares of Common Stock
pursuant to terms and conditions set forth in the Designation of Rights (or, if the Note is then convertible into shares of a class or series other than the Issuer's Series D Convertible
Preferred Stock, pursuant to the terms and conditions set forth in the designation of rights or other instrument governing the terms and conditions of such class or series);  provided, that upon any
mandatory conversion of the Note pursuant to Section 5.1 thereof, such shares of Preferred Stock received upon such
mandatory conversion shall be converted into shares of Common Stock in accordance with the provisions of Section 5.2 of the Note. 




        j.      Amendment to Section 12. Sections 12.1 through 12.4 of the Note Purchase Agreement are hereby deleted in their
entirety. 


        k.     Amendment to Section 13. Section 13 of the Note Purchase Agreement is hereby amended by (i) deleting
Section 13.2 therefrom and substituting in lieu thereof the following Section 13.2, and (ii) adding thereto the following Section 13.7: 



        "Section 13.2. Except as may be otherwise provided herein, all notices and other communications required or permitted hereunder
shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when received when sent by facsimile at the address and
number set forth below (provided, however, that notices given by facsimile shall not be effective unless either (i) a duplicate copy of such facsimile notice is promptly given by one of the
other methods described in this Section 13.2, or (ii) the receiving party delivers a written confirmation of receipt for such notice either by facsimile or any other method described in
this Section 13.2; or (c) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. 





	To: the Purchaser
	 	To: the Issuer

	Charles Charnas

VP, Deputy General Counsel and

Assistant Secretary

Hewlett-Packard Company

MS 1050

3000 Hanover Street

Palo Alto, CA 94304-1112



Fax: (650) 857-4837	 	Displaytech, Inc.

2602 Clover Basin Drive

Longmont, CO 80503-7603

Attn: Chief Executive Officer

With copies to:

Chief Financial Officer

General Counsel

Fax: (303) 772-0182




7







 


A
party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 13.2 by giving the other parties written notice of the new address in
the manner set forth above. 



        Section 13.7. No delay or omission to exercise any right, power or remedy accruing to the Company or to Purchaser, upon any breach
or default of any party hereto under this Agreement, shall impair any such right, power or remedy of the Company or the Purchaser, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of any similar breach or default thereafter occurring, or of any other breach or default theretofore or thereafter occurring." 






        l.      Amendments to Exhibits. Exhibit B to the Note Purchase Agreement (Designation of Rights) and Exhibit C to
the Note Purchase Agreement (form of Convertible Note) are hereby deleted in their entirety and replaced with Exhibits B and C in the form attached to this Amendment as Exhibits 2 and 1, respectively,
and by this reference made a part hereof. 


        2.     EFFECTIVENESS; AGREEMENT IN FULL FORCE AND EFFECT. This Amendment shall become effective as of the Effective Date. Except
as expressly amended herein, the Note Purchase Agreement is hereby ratified and affirmed and remains in full force and effect. 


        3.     SURVIVAL. The representations, warranties, covenants and agreements of the Company contained in this Amendment or in any
document or certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and shall continue in effect following the execution and delivery of this Agreement and
the Amended and Restated Convertible Note delivered pursuant hereto and any investigation at any time made by the Purchaser or on its behalf or by any other Person. 


        4.     MISCELLANEOUS PROVISIONS.


        4.1.    Governing Law.    This Amendment shall be governed in all respects by and construed in accordance with the
laws of the State of Colorado without regard to provisions regarding choice of laws. 



        4.2.    Titles and Subtitles.    The titles of the paragraphs and subparagraphs of this Amendment are for convenience
of reference only and are not to be considered in construing this Amendment. 


        4.3.    Counterparts.    This Amendment may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument. 


        4.4.    Severability.    Should any provision of this Amendment be determined to be illegal or unenforceable, such
determination shall not affect the remaining provisions of this Amendment. 


        4.5.    Construction.    This Amendment is the result of negotiations among, and has been reviewed by, the Company and
Purchaser and their respective counsel. Accordingly, this Amendment shall be deemed to be the product of all parties hereto, and no ambiguity shall be construed in favor of or against the Company or
Purchaser. 


[Balance of this page intentionally left blank.]


8







 

        IN WITNESS WHEREOF, the parties have executed this Second Amendment to Note Purchase Agreement to be effective as of the date first above
written. 



	The Company:	 	 
	

DISPLAYTECH, INC.	
 	

 
	

By:	

/s/  RICHARD BARTON      
	
 	

 
	 	Name: Richard Barton	 	 
	 	Title: Chief Executive Officer	 	 
	
HP:	

 	
 	

 
	

HEWLETT-PACKARD COMPANY.	
 	

 
	

By:	

/s/  CHARLES N. CHARNAS      
	
 	

 
	 	Name: Charles N. Charnas	 	 
	 	Title: Vice President,

Deputy General Counsel

and Assistant Secretary	 	 




9








EXHIBIT 1  


 FORM OF AMENDED AND RESTATED CONVERTIBLE NOTE  


[Executed
version filed as part of this Exhibit 10.17.] 







Exhibit 2  


AMENDED AND RESTATED

CERTIFICATE OF DESIGNATION

AND DETERMINATION OF PREFERENCES OF

THE SERIES D CONVERTIBLE PREFERRED STOCK

OF

DISPLAYTECH, INC.

A COLORADO CORPORATION  


        1.    Amendment.    The preferences, rights and privileges and the qualifications, restrictions and limitations of the
Series D Convertible Preferred Stock (hereinafter referred to as "Series D Preferred Stock") are hereby amended and restated in their
entirety, as specified in this Certificate of Designation. 


        2.    Dividends.    



        (a)    General Dividend Obligations.    In the event that the Company shall at any time or from time to time declare,
order, pay or make a dividend or other distribution (whether in cash, securities, rights to purchase securities or other property) on its Common Stock, the holders of shares of the Series D
Preferred Stock shall be entitled to receive from the Company, with respect to each share of Series D Preferred Stock held, a dividend or distribution that is the same dividend or distribution
that would be received by a holder of the number of shares of Common Stock into which such shares of Series D Preferred Stock are convertible pursuant to the provisions of Section 5
hereof on the record date for such dividend or distribution (except in the case of the payment of a stock dividend in shares of its Common Stock if a holder of shares of Series D Preferred
Stock shall have given notice to the Company (within five (5) business days after such holder's receipt of the Company's notice regarding the stock dividend) of its election to have the
Conversion Price of its shares adjusted in accordance with Section 5(d)(i) hereof). Any such dividend or distribution shall be declared, ordered, paid or made on the Series D
Preferred Stock at the same time such dividend or distribution is declared, ordered, paid or made on the Common Stock. Dividends, if declared, on shares of the Series D Preferred Stock shall
accrue and be cumulative from the payment date of such dividend on such shares. 



        (b)    Limitation on Dividends, Repurchases and Redemptions.    So long as any shares of Series D Preferred
Stock shall be outstanding, the Company shall not declare or pay or set apart for payment any dividends or make any other distributions on any Junior Securities, whether in cash, securities, rights to
purchase securities or other property (other than dividends or distributions payable in shares of the class or series upon which such dividends or distributions are declared or paid), nor shall the
Company purchase, redeem or otherwise acquire for any consideration or make payment on account of the purchase, redemption or other retirement of any Junior Securities (except as may be required by
the Stock Restriction Agreements), nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Securities (except as may be required by the Stock
Restriction Agreements), unless with respect to all of the foregoing all dividends or other distributions to which the holders of Series D Preferred Stock shall have been entitled, pursuant to
Section 2(a) hereof, shall have been paid or declared and a sum of money has been set apart for the full payment thereof. 


        (c)    Pro Rata Payments.    In the event that full dividends are not paid or made available to the holders of all
outstanding shares of Series D Preferred Stock and funds available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential
amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series D Preferred Stock in proportion
to the full amount to which they would otherwise be respectively entitled. 








 





        3.    Preference on Liquidation.    



        (a)    Liquidation Preference for Series D Preferred Stock.    In the event that the Company shall liquidate,
dissolve or wind up, whether voluntarily or involuntarily, no distribution shall be made to the holders of shares of Common Stock or other Junior Securities (and no monies shall be set apart for such
purpose) unless prior thereto, the holders of shares of Series D Preferred Stock shall have received, for each share of Series D Preferred Stock held, an amount in cash per share equal
to the Liquidation Value plus all accrued but unpaid dividends thereon through the date of distribution (the "Series D Liquidation Preference").
The "Liquidation Value" means $100 per share with respect to the Series D Preferred Stock, as adjusted pursuant to Section 5(d) hereof.
Upon the receipt by the holders of shares of Series D Preferred Stock of an amount in cash per share equal to the Series D Liquidation Preference, each share of Series D Preferred
Stock shall be void and of no further force or effect and the holders of such shares shall have no further rights with respect thereto. 


        (b)    Pro Rate Payments.    If, upon any such liquidation, dissolution or other winding up of the affairs of the
Company, the assets of the Company shall be insufficient to permit the payment in full of the Series D Liquidation Preference for each share of Series D Preferred Stock then outstanding,
then the assets of the Company remaining shall be ratably distributed among the holders of Series D Preferred Stock in proportion to the full amounts to which they would otherwise be
respectively entitled if all amounts thereon were paid in full. 


        (c)    Transactions Deemed a Liquidation.    The voluntary sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the property or assets of the Company or a merger, reorganization, sale of voting control or other transaction in which control of
the Company is transferred and in which the shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed to be a liquidation, dissolution or
winding up of the Company for purposes of this Section 3; provided that in the event of such a transaction, the Series D Liquidation Preference shall be paid in cash or in the
consideration to be received in the transaction, at the option of the Board of Directors of the Company. 


        (d)    Notice of Liquidation.    Written notice of any liquidation, dissolution or winding up of the Company, stating
the payment date or dates when and the place or places where amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than thirty
(30) days prior to any payment date specified therein, to the holders of record of the Series D Preferred Stock at their respective addresses as shall appear on the records of the
Company. 


        (e)    Status.    The Series D Preferred Stock shall rank senior in all respects, including the payment on
liquidation and redemption, only to the Common Stock and the Series B Preferred Stock of the Company (notwithstanding any provisions to the contrary set forth in the certificate of designations
of any other class or series of equity securities of the Company or otherwise). 



        (f)    Limitation.    Notwithstanding any provision of this Certificate of Designation to the contrary, while any
indebtedness of the Company under the HP Convertible Note is outstanding, no payments, dividends
or other distributions in cash or assets (other than in Capital Stock of the Company as otherwise permitted by the provisions of this Certificate of Designation) shall be made, with out the written
consent of Hewlett-Packard, on or with respect to the Series D Preferred Stock or any of the Company's other equity securities, including, without limitation, any cash payments arising from the
sale or liquidation of the Company. 




        4.    Voting.    The Series D Preferred Stock shall be entitled to vote only on those matters on which vote is
required by the laws of, the State of Colorado and, unless prohibited by the laws of the State of Colorado, the Series D Preferred Stock shall vote on all such matters together with the
Series E-D 


2







 

Preferred
Stock as a single voting group. Each share of Series D Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the
maximum number of whole shares of Common Stock into which each share of Series D Preferred Stock is then convertible, either directly or indirectly. Except as expressly provided in
Section 5(c) hereof, the Series D Preferred Stock shall have no other voting rights. 


        5.    Conversion.    The holders of shares of Series D Preferred Stock shall have the right to convert all or a
portion of such shares into fully paid and nonassessable shares of Common Stock or any Capital Stock or other securities into which such Common Stock shall have been changed or any Capital Stock or
other securities resulting from a reclassification thereof as follows: 



        (a)    Right to Convert.    Subject to and upon compliance with the provisions of this Section 5, a holder of
shares of Series D Preferred Stock shall have the right, at the option of such holder, at any time, to convert any or all of such shares into the number of fully paid and nonassessable shares
of Common Stock (calculated as to each conversion rounded down to the nearest l/100th of a share) obtained by dividing the aggregate Liquidation Value of the shares to be converted, plus all accrued
but unpaid dividends thereon through the date of conversion, by the Conversion Price and by surrender of such shares, such surrender to be made in the manner provided in paragraph (b) of this
Section 5. The Common Stock issuable upon conversion of the shares of Series D Preferred Stock, when such Common Stock shall be issued in accordance with the terms hereof, are hereby
declared to be and shall be duly authorized, validly issued, fully paid and nonassessable Common Stock held by the holders thereof. 


        (b)    Mechanics of Conversion.    Each holder of Series D Preferred Stock that desires to convert the same
into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the principal office of the Company or of any transfer agent for the Series D Preferred
Stock or Common Stock, accompanied by written notice to the Company that such holder elects to convert the same and stating therein the number of shares of Series D Preferred Stock being
converted, and setting forth the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued if such name or names shall be different than that of
such holder. Thereupon, the Company shall issue and deliver at such office on not later than the fifth Business Day thereafter (unless such conversion is in connection with an underwritten public
offering of Common
Stock, in which event concurrently with such conversion) to such holder or on such holder's written order, (i) a certificate or certificates for the number of validly issued, fully paid and
nonassessable full shares of Common Stock to which such holder is entitled and (ii) if less than the full number of shares of Series D Preferred Stock evidenced by the surrendered
certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of
shares converted. 


        Each
conversion shall be deemed to have been effected immediately prior to the close of business on the date of such surrender of the shares to be converted so that the rights of the
holder thereof as to the shares being converted shall cease at such time except for the right to receive shares of Common Stock and if the holder of the shares being so converted shall have elected to
receive dividends subsequent to such conversion, all accrued and unpaid dividends in accordance herewith, and the person entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common Stock at such time. 


        (c)    Mandatory Conversion; Conditional Conversion.    If at any time the holders of a majority of the
Series D Preferred Stock and the Series E-D Preferred Stock, voting together as a single class, vote to require a mandatory conversion of the Series D Preferred Stock
and the Series E-D Preferred Stock, each holder of shares of Series D Preferred Stock shall surrender the certificate 



3







 




or
certificates for all shares of Series D Preferred Stock for conversion by the conversion date specified by the vote of the majority of the holders of the Series D Preferred Stock and
the Series E-D Preferred Stock. Notwithstanding any other provision hereof, if conversion of any shares of Series D Preferred Stock is to be made in connection with a public
offering of Common Stock or any transaction described in Section 5(d)(iii) hereof, the conversion of any shares of Series D Preferred Stock may, at the election of the holder
thereof, be conditioned upon the consummation of the public offering or such transaction, in which case such conversion shall not be deemed to be effective until the consummation of such public
offering or transaction. 


        (d)    Adjustment of the Conversion Price.    The Conversion Price shall be adjusted from time to time as follows: 



        (i)    Adjustment for Stock Splits and Combinations. If the Company at any time, or from time to time after the Issue Date, pays
a stock dividend in shares of its Common Stock to the holders of its Common Stock, issues any debt securities to the holders of its Common Stock, effects a subdivision of the outstanding Common Stock,
combines the outstanding shares of Common Stock, issues by reclassification of shares of its Common Stock any shares of Capital Stock of the Corporation, or makes a distribution to the holders of its
Common Stock of any of its assets (other than cash dividends payable out of earnings or retained earnings in the ordinary course of business) then, in each such case, the Conversion Price in effect
immediately prior to such event shall be adjusted so that each holder of shares of Series D Preferred Stock shall have the right to convert its shares of Series D Preferred Stock
into the number of shares of Common Stock which it would have owned after the event had such shares of Series D Preferred Stock been converted immediately before the happening of such event.
Any adjustment under this Section 5(d)(i) shall become effective retroactively immediately after the record date in the case of a dividend and distribution and shall become effective
immediately after the effective date in the case of an issuance, subdivision, combination or reclassification. If the Company pays a stock dividend in shares of its Common Stock to the holders of its
Common Stock and the holders of the Series D Preferred Stock received such stock dividend pursuant to Section 2(a) hereof, the Conversion Price shall not be adjusted for such stock
dividend under this Section 5(d)(i). 


        (ii)   Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to making
adjustments to the shares of Common Stock into which the Series D Preferred Stock is convertible and the Conversion Price at which the Series D Preferred Stock is convertible provided
for in this Section 5(d): 



        (A)  When Adjustments Are to Be Made. The adjustments required by this Section 5(d) shall be made whenever and as often
as any event requiring an adjustment shall occur, except that any adjustment of the Conversion Price that would otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in Section 5(d)(i)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not
previously made amount to a change in the Conversion Price of less than $.05. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made on the earlier of (I) such time as such adjustment, together with other adjustments required by this Section 5(d) and not previously made, would result in an
aggregate adjustment equal to or in excess of a minimum adjustment or (II) on the date of conversion. For the purpose of any adjustment, any event shall be deemed to have occurred at the close
of business on the date of its occurrence. 





4







 



        (B)  Fractional Interests. In computing adjustments under this Section 5(d), fractional interests in the Common Stock
shall be taken into account to the nearest 1/100th of a share. 




        (iii)  Reorganization, Reclassification, Consolidation or Merger. If the Company shall at any time reorganize or reclassify
the outstanding shares of Common Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or
consolidate with or merge into another corporation (where the Company is not the continuing corporation after such merger or consolidation), the holders of Series D Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series D Preferred Stock in whole or in part, the same kind and number of shares of stock and other securities, cash or other property
(and upon the same terms and with the same rights) as would have been distributed to a holder upon such reorganization, reclassification, consolidation or merger had such holder converted its
Series D Preferred Stock immediately prior to such reorganization, reclassification, consolidation or merger (subject to subsequent adjustments under Section 5(d) hereof). The Conversion
Price upon such
conversion shall be the Conversion Price that would otherwise be in effect pursuant to the terms hereof. Notwithstanding anything herein to the contrary, the Company will not effect any such
reorganization, reclassification, consolidation or merger unless prior to the consummation thereof, the corporation which may be required to deliver any stock, securities or other assets upon the
conversion of the Series D Preferred Stock shall agree by an instrument in writing to deliver such stock, cash, securities or other assets to the holders of the Series D Preferred Stock.
A sale, transfer or lease of all or substantially all of the assets of the Company to another person shall be deemed a reorganization, reclassification, consolidation or merger for the foregoing
purposes. 


        (iv)  Chief Financial Officer's Opinion. Upon each adjustment of the Conversion Price, and in the event of any change in the
rights of a holder of Series D Preferred Stock by reason of other events herein set forth, then and in each such case, the Company will promptly obtain a certificate of the Chief Financial
Officer of the Company, stating the adjusted Conversion Price, or specifying the other shares of the Common Stock, securities or assets and the amount thereof receivable as a result of such change in
rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such certificate to the holders of
Series D Preferred Stock. If a holder disagrees with such calculation, the Company agrees to obtain within thirty (30) Business Days of its receipt of notice of such disagreement an
opinion of a firm of nationally recognized independent certified public accountants selected by the Company's Board of Directors (who may be the Company's regular firm of independent accountants) and
acceptable to such holder (which acceptance shall not be unreasonably withheld) to review such calculation and the opinion of such firm of independent certified public accountants shall be final and
binding on the parties and shall be conclusive evidence of the correctness of the computation with respect to any such adjustment of the Conversion Price. The fees of such certified public accountants
in connection with such opinion shall be borne by such holder if the Company's calculation is determined to be between 90% and 110% of the calculation of such accountants. 




        (e)    No Impairment.    The Company will not, by amendment of its certificate of incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of 



5







 

Section 5
hereof and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series D Preferred Stock against
impairment. 


        (f)    No Fractional Shares Adjustments.    No fractional shares shall be issued upon conversion of the
Series D Preferred Stock. If more than one share of the Series D Preferred Stock is to be converted at one time by the same stockholder, the number of full shares issuable upon such
conversion shall be computed on the basis of the aggregate amount of the shares to be converted. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of
any shares of Series D Preferred Stock, the Company will pay a cash adjustment in respect of such fractional interest in an amount equal to the same fraction of the Conversion Price per share
of Common Stock at the close of business
on the day of conversion which such fractional share of Series D Preferred Stock would be convertible into on such date. 


        (g)    Shares to be Reserved.    The Company shall at all times reserve and keep available, out its authorized, and
unissued stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series D Preferred Stock from time to time outstanding. The Company shall from time to time, in accordance with the laws of the State of Colorado, increase the
authorized number of shares of Common Stock if at any time the number of shares of authorized but unissued Common Stock shall be insufficient to permit the conversion in full of the Series D
Preferred Stock. 


        (h)    Taxes and Charges.    The Company will pay any and all issue or other taxes that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of the Series D Preferred Stock. The Company shall not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issuance or delivery of Common Stock in a name other than that of the Series D Preferred Stock, and no such issuance or delivery shall be made unless and until the
Person requesting such issuance has paid to the Company the amount of such tax or has established, to the satisfaction of the Company, that such tax has been paid. 


        (i)    Accrued Dividends.    Upon conversion of any shares of Series D Preferred Stock, the holder thereof
shall be entitled to receive any accrued by unpaid dividends in respect of the shares of Series D Preferred Stock so converted to the date of such conversion. 


        (j)    Closing of Books.    The Company will at no time close its transfer books against the transfer of any shares of
Series D Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series D Preferred Stock in any manner which interferes with the timely
conversion of such shares of Series D Preferred Stock. 




        6.    Shares to be Retired.    Any shares of Series D Preferred Stock converted, redeemed, repurchased or
otherwise acquired by the Company shall be retired and cancelled and shall upon cancellation be restored to the status of authorized but unissued shares of preferred stock, subject to reissuance by
the Board of Directors as shares of preferred stock of one or more other series but not as shares of Series D Preferred Stock. 



        7.    Preemptive Rights.    The holders of Series D Preferred Stock shall not have preemptive rights. 


        8.    Call.    



        (a)    Call at the Company's Option.    Subject to the other provisions of this Section 8, upon the completion
of a Qualified Public Offering, the Company shall have the right to purchase any or all outstanding shares of Series D Preferred Stock (the
"Call"). Any purchase of the Series D Preferred Stock pursuant to this Section 8(a) shall be at a price per share of Series D
Preferred Stock equal to the Liquidation Value plus all accrued but unpaid dividends thereon through the date of the exercise of the Call (the "Call Price"). 



6







 

        (b)    Procedures for Call at the Company's Option.    The Company's right to Call the Series D Preferred Stock
pursuant to Section 8(a) hereof shall be conditioned upon the Company giving notice (the "Call Notice"), by first class mail, postage prepaid, of
the exercise of the Call to the holders of the Series D Preferred Stock not less than twenty five (25) days prior to the date of the exercise of the Call (the
"Call Date"). Each Call Notice shall state: (i) the Call Date; (ii) the number of shares covered by the Call, (iii) the Call Price;
(iv) the place or places where certificates for such shares are to be surrendered for payment of the Call Price; (v) that payment will be made upon presentation and surrender of such
Series D Preferred Stock; (vi) the then-current Conversion Price and the date on which the right to convert such shares of Series D Preferred Stock will expire;
(vii) that dividends on the shares to be purchased shall cease to accrue following such Call Date; (viii) that such Call is mandatory; and (ix) that dividends, if any, accrued to
and including the Call Date will be paid as specified in such notice. Notice having been mailed as aforesaid, from and after the Call Date, unless the Company shall in default in the payment of Call
Price (including any accrued and unpaid dividends to (and including) the Call Date), (A) dividends on the shares of the Series D Preferred Stock shall cease to accrue, (B) such
shares shall be deemed no longer outstanding and (C) all rights of the holders thereof as holders of the Series D Preferred Stock (except the right to receive from the Company any moneys
payable upon exercise of the Call without interest thereon) shall cease. 




        Upon
surrender in accordance with the Call Notice of the certificates for any such shares so purchased (properly endorsed or assigned for transfer, if the Board of Directors shall so
require and the Call Notice shall so state), such shares shall be purchased by the Company at the applicable Call Price. 


        Notwithstanding
the foregoing, if the Call Notice has been given pursuant to this Section 8 and any holder of shares of Series D Preferred Stock shall, prior to the close
of business on the twentieth (20th) day after receipt of such Call Notice, give written notice to the Company Pursuant to Section 5(b) hereof of the conversion of any or all of the shares to be
purchased held by such holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Company), then (i) the conversion of such shares to be purchased
shall become effective as provided in Section 5 hereof and (ii) the Company's right to Call such shares to be purchased shall terminate. 


        9.    Definitions.    As used herein, the following terms shall have the respective meanings set forth below: 



        "Business Day" means any day that is not a Saturday, a Sunday or any day on which banks in the State of New York are authorized or
obligated to close. 


        "Call" shall have the meaning set forth in Section 8(a). 


        "Call Date" shall have the meaning set forth in Section 8(b). 


        "Call Notice" shall have the meaning set forth in Section 8(b). 


        "Call Price" shall have the meaning set forth in Section 8(a). 



        "Capital Stock" means any class of capital stock of the Company authorized by its certificate of incorporation. 


        "Certificate of Designation" shall mean this Amended and Restated Certificate of Designation and Determination of Preferences of the
Series D Convertible Preferred Stock. 


        "Common Stock" means the Company's Common Stock, par value $.001 per share, and shall also include any common stock of the Company
hereafter authorized and any Capital Stock of the Company of any other class hereafter authorized which is not preferred as to dividends or assets over any other class of Capital Stock of the Company. 



7







 




        "Company" shall mean Displaytech, Inc., a Colorado Corporation, its successors and assigns. 


        "Conversion Price" means the Conversion Price per share of Common Stock into which the Series D Preferred Stock is convertible, as
such Conversion Price may be adjusted pursuant to Section 5 hereof. The initial Conversion Price will be $5.50. 


        "Convertible Securities" means evidences of indebtedness, shares of preferred stock, options, warrants or other securities of the Company
which are convertible into or exchangeable for, with or without payment of additional consideration in cash or property, Capital Stock, either immediately or upon the occurrence of a specified date or
a specified event, not including the Series D Preferred Stock. 


        "Hewlett-Packard" means Hewlett-Packard Company, a Delaware Corporation. 


        "HP Convertible Note" means the Amended and Restated Convertible Note of the Company in favor of Hewlett-Packard, dated as of the
effective date of this Certificate of Designation, in the original principal amount of $10,000,000.00. 


        "Issue Date" means, as to any share of Series D Preferred Stock, the date of original issuance thereof by the Company. 



        "Junior Securities" mean the Common Stock and the Series B Preferred Stock. 


        "Liquidation Value" shall have the meaning set forth in Section 3(a). 


        "Person or "person" means an individual, partnership, corporation, trust, unincorporated
organization, joint venture, government or agency, political subdivision thereof, or any other entity of any kind. 



        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (and the rules, regulations and interpretations thereunder), covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net
of underwriting discounts, commissions and other expenses, are at least $35,000,000, and (ii) the price per share of Common Stock sold in such offering reflects a pre-money
valuation of the Company at the time of the consummation of such sale of at least $250 million. 



        "Series B Preferred Stock" means the Company's Series B Convertible Preferred Stock, par value $.001 per share. 


        "Series D Liquidation Preference" shall have the meaning set forth in Section 3(a). 


        "Series D Preferred Stock" shall have the meaning set forth in Section 1. 


        "Series E-D Preferred Stock" means the Company's Series E-D Convertible Preferred Stock, par value
$.001 per share. 


        "Stock Restriction Agreements" mean the currently existing stock restriction agreements between the Company and the holders of the
Company's Capital Stock named therein, such agreements relating to an aggregate of not more than 500,000 shares of the Company's Capital Stock. 




        10.    Notices.    Except as may otherwise be provided for herein, all notices referred to herein shall be in writing,
and all notices hereunder shall be deemed to have been given (i) upon receipt, in the case of a notice of conversion given to the Company as contemplated in Section 5(b) hereof, or
(ii) in all other cases, upon the earlier of (x) receipt of such notice, (y) three Business Days after the mailing of such notice if sent by registered mail (unless first-class
mail shall be specifically permitted for such notice under the terms hereof) or (z) the Business Day following sending such notice by overnight 


8







 

courier,
in any case with postage or delivery charges prepaid, addressed: if to the Company, to its offices at 2602 Clover Basin Drive, Longmont, CO 80503-7603 Attention: President, or to
an agent of the Company designated as permitted by the certificate of incorporation, or, if to any holder of the Series D Preferred Stock, to such holder at the address of such holder of the
Series D Preferred Stock as listed in the stock record books of the Company, or to such other address as the Company or holder, as the case may be, shall have designated by notice similarly
given. 


*
* * * * * 


9








EXHIBIT A  


To:
Displaytech, Inc. 


        The
undersigned holder of this Amended and Restated Convertible Note ("Note") hereby irrevocably exercises the option to convert this Convertible Note, or the portion below designated,
into Preferred Stock (as defined in the Note) of Displaytech, Inc. (the "Company") as permitted by the Articles of Incorporation of the Company, in
accordance with the terms of this Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated by assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned shall pay
all transfer taxes payable with respect thereto. 



	Date:	 	 
	

                in whole	
 	

in part
	

 	
 	

                Portion of principal amount of the

                Note to be converted:
	

 	
 	

                $

                Signature (for conversion only)





Please
print or typewrite Name and Address, including Zip Code, and Social Security or Other Identifying Number. 








EXHIBIT 3  


REPRESENTATIONS AND WARRANTIES OF THE COMPANY  


        4.1. Corporate Existence, Power and Authority. 



        (a)   The
Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company is duly qualified,
licensed and authorized to do business and is in good standing in each jurisdiction in which it owns or leases any property or in which the conduct of its business requires it to so qualify or be so
licensed, except for such jurisdictions where the failure to so qualify or be so licensed would not have a material adverse effect on the Company's assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects. 


        (b)   No
proceeding has been commenced looking toward the dissolution or merger of the Company or the amendment of its certificate of incorporation, other than the
Certificates of Designation. The Company is not in violation in any respect of its certificate of incorporation or its by-laws. 


        (c)   The
Company has all requisite power, authority (corporate and other) and legal right to own or to hold under lease and to operate the properties it owns or holds and to
conduct its business as now being conducted. 


        (d)   The
Company has all requisite power, authority (corporate and other) and legal right to execute, deliver, enter into, and consummate the transactions contemplated by and
perform its obligations under (i) this Agreement, (ii) the Note, including, without limitation, the issuance by the Company of the shares of the Company's Preferred Stock issuable upon
conversion of the Note (the "Shares") and the issuance by the Company of the shares of the Company's Common Stock issuable upon conversion of the
Shares (the "Conversion Shares"), as contemplated herein and in the Note and the Designation of Rights, (iii) Amendment No. 2 to
Shareholders' Rights Agreement, and (iv) that certain Visitation and Notification Agreement executed by the Company and Purchaser concurrently herewith (the "Visitation
Agreement"). The execution, delivery and performance of this Agreement, Amendment No. 2 to Shareholders' Rights Agreement, the Note, and the Visitation Agreement
(collectively, the "Restructure Documents") by the Company (including, without limitation, the issuance by the Company of the Shares and the Conversion
Shares as contemplated herein and therein and in the Designation of
Rights) have been duly authorized by all required corporate and other actions. The Company has duly executed and delivered this Agreement and each of the other Restructure Documents. This Agreement
and each of the other Restructure Documents constitute the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of creditors generally or under general principles of equity. 




        4.2.  Capital Stock. 



        (a)   Schedule 4.2 (a) hereto correctly and completely lists (i) the authorized Capital Stock of the Company
(Common Stock and Preferred Stock), (ii) the number of designated shares of Preferred Stock in each Series or Class after giving effect to the Certificates of Designation, and
(iii) after giving effect to the issuance of shares of the Company's Series E-1 Senior Preferred Stock on the Closing Date as contemplated by the Series E SPA and the
exchange by all eligible holders of shares of the Company's Series B and Series D Convertible Preferred Stock for shares of the Company's Series E-B and
E-D Convertible Preferred Stock, the number of shares outstanding in each Series or Class. There have been no material issuances of shares since February     ,
2003. All of such outstanding shares are, or on the Closing Date will be, duly authorized, validly issued and outstanding, fully paid and non-assessable. Except as provided in the
Certificates of Designation or in Schedule 4.2(a), none of the shares of the Company's Capital Stock which will be outstanding at the Closing
(i) were or will be subject to preemptive rights 








 

when
issued or (ii) provide the holders thereof with any preemptive rights with respect to any issuances of Capital Stock. 


        (b)   Schedule 4.2(b) hereto correctly and completely lists the number and purpose for which shares of the Company's
Common Stock are reserved for issuance by the Company. 


        (c)   Except
as referred to in Section 4.2(b), there are no outstanding options, warrants, subscriptions, rights,
convertible securities or other agreements or plans under which the Company may become obligated to issue, sell or transfer shares of its Capital Stock or other securities. 


        (d)   Except
as referred to in Section 4.2(b), and for the registration rights contained in the Shareholders' Rights
Agreement, there are and will be no outstanding registration rights with respect to any Capital
Stock of the Company, including, without limitation, any Capital Stock referred to in Section 4.2(b) or 4.2(c), which (in either case) will be outstanding on the Closing Date. 


        (e)   Except
as set forth in Schedule 4.2(e), there are no voting agreements, voting trusts, proxies or other agreements
or understandings with respect to the voting of any Capital Stock of the Company of which the Company is a party, except as provided herein, in that Series E Shareholders' Rights Agreement of
even date herewith among the holders of shares of the Company's Series E-1 Senior Preferred Stock, and in the Certificates of Designation. 


        (f)    Except
as set forth in Schedule 4.2(f), there are no anti-dilution protections or other adjustment
provisions in existence with respect to any Capital Stock of the Company, including any Capital Stock referred to in Section 4.2(b) or 4.2(c). 



        (g)   Each
Certificate of Designation and the Designation of Rights has been duly adopted by the Company and is fully effective as an amendment to the Company's certificate of
incorporation. The Shares will have all of the rights, priorities and terms set forth in the applicable Certificate of Designation. 


        (h)   To
the best knowledge of the Company, Schedule 4.2(h) hereto correctly and completely lists the names of those
persons who beneficially own, directly or indirectly, more than 5% (calculated in accordance with Rule 13d-3 under the Exchange Act) of the Company's outstanding Common Stock. 




        4.3.  Subsidiaries. 


        The
Company has two wholly-owned Subsidiaries, Displaytech International, Inc., a Colorado corporation, and Displaytech Asia-Pacific K.K., a Japanese corporation. The
Company has no Investments in any other Person. 


        4.4.
Business. 


        The
Company is engaged in the business of designing, developing, manufacturing, and marketing Ferroelectric Liquid Crystal (FLC) microdisplays, used to provide superior image quality in
electronic devices such as digital still camera and camcorder viewfinders 


        4.5.
No Defaults or Conflicts. 



        (a)   Except
as provided in Schedule 4.5(a), the Company is not in violation or default in any material respect (and is
not in default in any respect regarding any Indebtedness) under any indenture, agreement or instrument to which it is a party or by which it or its properties may be bound. The Company is not in
default in any material respect under any material order, writ, injunction, judgment or decree of any court or other governmental authority or arbitrator(s). 


        (b)   The
execution, delivery and performance by the Company of this Agreement and the other Restructure Documents, and any of the transactions contemplated hereby or thereby 



2







 




(including,
without limitation, the issuance of the Shares and the Conversion Shares as contemplated herein and therein and in the Designation of Rights) do not and will not (i) violate or
conflict with, with or without the giving of notice or the passage of time or both, any provision of (A) the certificate of incorporation or by-laws of the Company, (B) any
law, rule, regulation or order of any federal, state, county, municipal or other Governmental Authority, (C) any judgment, writ, injunction, decree, award or other action of any court or
Governmental Authority or arbitrator(s), or (D) any agreement, indenture or other instrument applicable to the Company or any of its respective properties, (ii) result in the creation of
any Lien upon any of the Company's properties, assets or revenues, except as provided in the Certificates of Designation, (iii) require the consent, waiver, approval, order or authorization of,
or declaration, registration, qualification or filing with, any Person (whether or not a Governmental Authority and including, without limitation, any shareholder approval) (other than any necessary
approvals which have been obtained prior to the date hereof), or (iv) except as provided in Schedule 4.5(b), cause antidilution clauses of
any outstanding securities to become operative or give rise to any preemptive rights. No provision of any item referred to in the preceding clause (i) materially adversely affects the assets,
properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis or the ability of the Company to perform its
obligations under this Agreement, any of the other Restructure Documents, the Designation of Rights, or any of the transactions contemplated hereby or thereby. 




        4.6.
Disclosure Materials; Other Information. 



        (a)   The
Company has previously furnished to the Purchasers or their counsel the materials described on Schedule 4.6(a)
hereto (the "Disclosure Material"). The audited and unaudited financial statements referred to or contained in the materials referred to on  Schedule 4.6(a) fairly present the consolidated financial condition of the Company as of the respective dates thereof and the consolidated
results of the operations of the Company for such periods and have been prepared in accordance with generally accepted accounting principles consistently applied, except that any such unaudited
statements may omit notes and may be subject to normal recurring adjustments and year-end adjustments. 


        (b)   Since
September 30, 2002, (i) the business of the Company has been conducted in the ordinary course and (ii) there has been no material adverse
change in the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. As of the Closing Date
and as of the date hereof, there are no material liabilities of the Company which would be required to be provided for in a consolidated balance sheet of the Company as of any such date prepared in
accordance with generally accepted accounting principles consistently applied, other than liabilities provided for in the financial statements referred to in Section 4.6(a). Since
September 30, 2002, no amount or property has directly or indirectly been declared, ordered, paid, made or set aside for any Restricted Payment nor has any such action been agreed to. 


        (c)   There
are no material liabilities, contingent or otherwise, of the Company that have not been disclosed in the financial statements referred to in
Section 4.6(a) or otherwise disclosed in the schedules hereto. 



        (d)   The
financial projections included in the Disclosure Material conform with the internal operating forecasts of the Company and were based on reasonable assumptions when
made and have been prepared in good faith. 


        (e)   There
is no fact known to the Company which is not in the disclosure schedules hereto and which materially and adversely affects, or in the future would be reasonably
likely (as far as the Company currently can reasonably foresee) to materially and adversely affect, the assets, 



3








 




properties,
liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. 




        4.7.
Litigation. 


        There
is no action, suit, proceeding, investigation or claim pending or, to the knowledge of the Company, threatened in law, equity or otherwise before any court, administrative agency
or arbitrator which (i) questions the validity of this Agreement, any of the other Restructure Documents, the Certificates of Designation, the Shares or the Conversion Shares, or any action
taken or to be taken pursuant hereto or thereto, (ii) might adversely affect the right, title or interest of any Purchaser to the Note or (iii) might result in a material adverse
change in the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the Company on a consolidated basis. 


        4.8.
Taxes. 


        The
Company has duly and timely filed all material Tax Returns required to be filed by it, and each such Tax Return correctly and completely reflects, in all material respects, the Tax
liability and all other information required to be reported thereon. The Company has paid or caused to be paid all material Taxes (whether or not reflected on such Tax Returns) that are due and
payable. The provision for Taxes due by the Company in the most recent financial statement included in the Disclosure Material is sufficient for all material unpaid Taxes, being current Taxes not yet
due and payable, of the Company, as of the end of the period covered by such financial statement, and as of the Closing Date, such provision, as adjusted for the passage of time through the Closing
Date, will be sufficient for the then-accrued and unpaid Taxes not yet due and payable of the Company. No Tax Returns of the Company have ever been audited by any Taxing Authority, there
is no dispute concerning any Tax liability of the Company either threatened, claimed or raised by any Taxing Authority, and the Company does not expect any Taxing Authority to assess additional Taxes
against or in respect of it for any past period. The Company has withheld and paid, or, if not yet due for payment, set aside in accounts for such purposes, all Taxes required to have been withheld in
connection with amounts paid or owing to any employee, creditor, independent contractor or other third party. Other than stamp taxes, the Company has no liability for Taxes of any Person other than
the Company (i) as a transferee or successor, (ii) by contract, or (iii) otherwise. 


        4.9.
ERISA. 



        (a)   All
Benefit Plans are listed in Schedule 4.9(a), and copies of all documentation relating to such Benefit Plans
have been delivered to or made available for review by the Purchasers (including copies of written Benefit Plans, written descriptions of oral Benefit Plans, summary plan descriptions, trust
agreements, the three most recent annual returns, employee communications, and IRS determination letters). 


        (b)   Each
Benefit Plan has at all times been maintained and administered in all material respects in accordance with its terms and with the requirements of all applicable
law, including ERISA and the Code, and each Benefit Plan intended to qualify under Section 401(a) of the Code has at all times since its adoption been so qualified, and each trust which
forms a part of any such plan has at all times since its adoption been tax-exempt under Section 501(a) of the Code. 



        (c)   No
Benefit Plan has incurred any "accumulated funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of the Code, and the "amount of
unfunded benefit liabilities" within the meaning of Section 4001(a)(18) of ERISA does not exceed zero with respect to any Benefit Plan subject to Title IV of ERISA. 


        (d)   No
"reportable event" (within the meaning of Section 4043 of ERISA) has occurred with respect to any Benefit Plan or any Plan maintained by an ERISA Affiliate
since the effective date 



4







 




of
said Section 4043 for which notice is not waived under the regulations issued pursuant to said Section 4043. 


        (e)   No
Benefit Plan is a multiemployer plan within the meaning of Section 3(37) of ERISA. 


        (f)    No
direct, contingent or secondary liability has been incurred or is expected to be incurred by the Company under Title IV of ERISA to any party with respect to
any Benefit Plan, or with respect to any other Plan presently or heretofore maintained or contributed to by any ERISA Affiliate. 



        (g)   Neither
the Company nor any ERISA Affiliate has incurred any liability for any tax imposed under Section 4971 through 4980B of the Code or civil liability under
Section 502(i) or (l) of ERISA. 


        (h)   No
benefit under any Benefit Plan, including, without limitation, any severance or parachute payment plan or agreement, will be established or become accelerated, vested
or payable by reason of any transaction contemplated under this Agreement. 


        (i)    No
Benefit Plan provides health or death benefit coverage beyond the termination of an employee's employment, except as required by Part 6 of Subtitle B of
Title I of ERISA or Section 4980B of the Code or any State laws requiring continuation of benefits coverage following termination of employment. 


        (j)    No
suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of plan activities and any other claim which could not reasonably be
expected to result in a material liability or expense to the Company) has been brought or, to the knowledge of the Company, threatened against or with respect to any Benefit Plan and there are no
facts or circumstances known to the Company that could reasonably be expected to give rise to any such suit, action or other litigation. 



        (k)   All
contributions to Benefit Plans that were required to be made under such Benefit Plans have been made, and all benefits accrued under any unfunded Benefit Plan have
been paid, accrued or otherwise adequately reserved in accordance with generally accepted accounting principles, all of which accruals under unfunded Benefit Plans are as disclosed in  Schedule 4.9(k), and the Company has performed all material obligations required to be performed under all Benefit Plans. 


        (l)    The
execution, delivery and performance of this Agreement and the other Restructure Documents, and the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the offer, issue and sale by the Company, and the purchase by any Purchaser of the Note) will not involve any "prohibited transaction" within the meaning of ERISA or
the Code with respect to any Benefit Plan. 




        4.10.
Legal Compliance. 



        (a)   The
Company has complied with all applicable laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands, except to the extent that
failure to so comply would not materially adversely affect the assets, properties, liabilities, business affairs, results of operations, condition (financial or otherwise) or prospects of the Company
on a consolidated basis. 


        (b)   There
are no adverse orders, judgments, writs, injunctions, decrees, or demands of any court or administrative body, domestic or foreign, or of any governmental agency
or instrumentality, domestic or foreign, outstanding against the Company. 



5







 





        4.11.
Outstanding Securities. 



        Schedule 4.11 hereto correctly and completely lists the outstanding securities (as defined in the Securities Act) of the Company.
All securities of the Company have been offered, issued, sold and delivered in compliance with, or pursuant to exemptions from, all applicable federal and state laws, and the rules and regulations of
federal and state regulatory bodies governing the offering, issuance, sale and delivery of securities. 


        4.12.
Intellectual Property and Other Rights. 



        (a)
(i) Except as set forth on Schedule 4.12(a), the Company owns, or has the right to use, all United States and foreign
patents, trademarks, service marks, trade names, computer software and programs, technology, know-how and processes, and registered copyrights, and any applications for any of the
foregoing of any kind which is used in its business (collectively, the "Intellectual Property").  Schedule 4.12(a) hereto contains a true, correct and
complete list of all registered trademarks and service marks, all reserved trade names, all
registered copyrights and all filed patent applications and issued patents that are material to the Company's business or are otherwise necessary for the conduct
of its business as heretofore conducted and as currently proposed to be conducted and all licenses, permits, consents, approvals or agreements that in any way affect the rights of the Company to any
of its Intellectual Property or any trade secret material (the "Intellectual Property Licenses"). 



        (ii)   Subject
to the limitations set forth in the Intellectual Property Licenses, except as otherwise set forth in any exceptions listed under  Schedule 4.12(a), the Company has all right, title and interest in
all of the Intellectual Property, free and clear of all Liens. The Company
owns or has the exclusive or non-exclusive right to use all Intellectual Property or trade secrets necessary to conduct its business as now being conducted. The Company owns or possesses
sufficient licenses, permits, consents, approvals or other rights to use all Intellectual Property covered by its patents or patent applications necessary to conduct its business as now being
conducted and as currently proposed to be conducted. 


        (iii)  The
Company has at all times maintained reasonable procedures to protect and has enforced all of its Intellectual Property and trade secrets. 


        (iv)  The
consummation of the transactions contemplated hereby will not alter, adversely affect or impair the rights of the Company to any of the Intellectual Property, any
trade secret material to it, or under any of the Intellectual Property Licenses. 




        (b)
(i) No claim with respect to the Intellectual Property, any trade secret material to the Company, or any Intellectual Property License which would adversely affect the ability
of the Company to conduct its business as presently conducted is currently pending or, to the best knowledge of the Company, has been asserted, or overtly threatened by any Person, nor does the
Company know of any grounds for any claim against the Company, (A) to the effect that any material operation or activity of the Company presently occurring, including,  inter alia, the manufacture,
use or sale of any product, device, instrument, or other material made or used according to the patents or patent
applications included in the Intellectual Property or Intellectual Property Licenses, infringes or misappropriates any valid United States or foreign copyright, patent, trademark, service mark or
trade secret; (B) to the effect that any other Person infringes on the Intellectual Property or misappropriates any trade secret or know-how or other proprietary rights material to
the Company; (C) challenging the ownership, validity or effectiveness of any of the Intellectual Property or trade secret material of the Company; or (D) challenging the license of the
Company or other legally enforceable right under, any Intellectual Property or the Intellectual Property Licenses. 



6







 


        (ii)   The
Company is not aware of any presently existing valid United States or foreign patents or any patent applications which if issued as patents would be infringed by
any activity contemplated by the Company. 




        (c)   The
United States and foreign patents and patent applications owned by the Company listed in Schedule 4.12(a)
hereto (the "Patents and Applications") as part of the Intellectual Property have been properly filed on behalf of the Company as named therein, are
being diligently pursued by the Company and, to the Company's best knowledge, have been properly prepared. To the Company's best knowledge, there are no defects in any of the Patents and Applications
that would cause any of them to be held invalid or unenforceable. All relevant prior art of which the Company is aware has been filed in the relevant patent office, to the extent required by law. 




        4.13.
Key Employees. 


        The
Company has good relationships with its employees and has not had and does not expect any substantial labor problems. The Company has no knowledge as to any intentions of any key
employee or any group of employees to leave the employ of the Company. The employees of the Company are not and have never been represented by any labor union, and no collective bargaining agreement
is binding and in force against the Company or currently being negotiated by the Company. 


        4.14.
Properties. 


        The
Company does not and has never owned any real property. Other than the Permitted Liens, the Company has good and marketable title to each of its other properties other than leased
properties, all of which are disclosed on Schedule 4.14 hereto. Certain real property used by the Company in the conduct of its business is held
under lease (as identified on Schedule 4.14 hereto), and the Company is not aware of any pending or threatened claim or action by any lessor of
any such property to terminate any such lease. All such leases are valid and in full force and effect, and none of such leases is in default. None of the properties owned or leased by the Company is
subject to any Liens which could materially and adversely affect the assets, properties, liabilities, business, affairs, results of operations, condition (financial or otherwise) or prospects of the
Company on a consolidated basis. 


        4.15.
Suppliers and Customers. 



        (a)   The
Company has adequate sources of supply for its business as currently conducted and as proposed to be conducted. The Company has good relationships with all of its
material sources of supply of goods and services and does not anticipate any material problem with any such material sources of supply. 


        (b)   Except
as set forth on Schedule 4.15(b), the Company has no knowledge that the customer base of the Company might
materially decrease. 




        4.16.
Environmental Compliance. 



        (a)   Except
as set forth on Schedule 4.16(a), there is no Hazardous Material on, about, under or in, any property, real
or personal, in which the Company has or has formerly had any interest in an amount or concentration which could constitute a violation that would result in a liability in excess of $75,000 or
otherwise result in a liability in excess of $75,000 to the Company under any applicable Environmental Law. 


        (b)   There
is no (and has not been any) off-site use, handling, storage or disposal or, except as set forth on  Schedule 4.16(b), on-site use, handling, storage or disposal of Hazardous Material at or from any
locations currently or formerly
owned, leased, operated or occupied by the Company as a result of which use, handling, storage or disposal the Company could incur a material liability or obligation under any applicable Environmental
Law. 



7







 




        (c)   Except
as set forth on Schedule 4.16(a), the Company has not received any verbal or written notice, citation,
subpoena, summons, complaint or other correspondence or communication from any person with respect to the presence of any non-indigenous Hazardous Material upon, into, beneath, or
emanating from or affecting any of the real property (including improvements) currently or formerly owned or occupied by the Company that could result in a liability to the Company in excess of
$75,000 under any applicable Environmental Law. 


        (d)   Except
as set forth on Schedule 4.16(a), there has been no intentional or unintentional, gradual or sudden,
release, disposal or discharge by the Company or, to the Company's knowledge, by others, upon, into or beneath the real property (including improvements) currently or formerly owned or occupied by the
Company that has caused or is causing soil or groundwater contamination which, under applicable Environmental Laws could require investigation or remediation or could otherwise create a material
liability or obligation on the part of the Company under any applicable Environmental Law. 


        (e)   The
Company is in material compliance with all applicable Environmental Laws, has received all required Environmental Permits and is in material compliance with the
terms and conditions of all Environmental Permits. 


        (f)    To
the best knowledge of the Company, after reasonable inquiry, there are no Liens arising under or pursuant to any Environmental Law
("Environmental Liens") relating to any real property (including improvements thereon) currently owned by the Company. 


        (g)   There
are no (i) underground storage tanks, (ii) polychlorinated biphenyl containing equipment or (iii) asbestos-containing materials at any site
currently owned, operated or leased by the Company, except in compliance with all applicable Environmental Laws. 




        4.17.
No Burdensome Agreements


        To
the best of the knowledge and belief of the Company, the Company is not a party to any contract or agreement with any Affiliate of the Company, the terms of which are less favorable
to the Company than those which might have been obtained, at the time such contract or agreement was entered into, from a person who was not such an Affiliate. 


        4.18.
Offering of Shares. 


        Except
as set forth on Schedule 4.18, none of the Company, any agent or any other person acting on its behalf, directly or
indirectly, (i) offered any of the Shares or any similar security of the Company (A) by any form of general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or (B) for sale to or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person other than (x) the
Purchasers and (y) other investors, each of which the Company reasonably believed at the time of such sale, solicitation, approach or negotiation was an "accredited investor" within the meaning
of Regulation D under the Securities Act or (ii) has done or caused to be done (or has omitted to do or to cause to be done) any act which act (or which omission) would result in
bringing the issuance or sale of the Shares within the provisions of Section 5 of the Securities Act or the filing, notification or reporting provisions of any state securities laws. 


        4.19.  Indebtedness. 


        Schedule 4.19 hereto sets forth (i) the amount of all Indebtedness of the Company outstanding as of January 31, 2003
(and there is no additional material amount of Indebtedness of the Company outstanding other than as set forth on such Schedule 4.19),
(ii) any Lien with respect to such Indebtedness and (iii) a description of each instrument or agreement governing such Indebtedness. The Company has made available to the Purchasers a
complete and correct copy of each such instrument or agreement (including all amendments, supplements or modifications thereto). No material default exists 


8







 



with
respect to or under any such Indebtedness or any instrument or agreement relating thereto and no event or circumstance exists with respect thereto that (with notice or the lapse of time or both)
could give rise to such a default. 


        4.20.
Use of Proceeds. 



        The
Company will use the net proceeds realized from the sale of the Shares to fund future development opportunities, for working capital purposes and for such other purposes as necessary
or advisable in the sole judgment of the Company's Board of Directors. No portion of such proceeds will be used for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying,
within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, any "margin stock" as defined in said Regulation U, or any
"margin stock" as defined in Regulation G of the Board of Governors of the Federal Reserve System, as amended from time to time, or for the purpose of purchasing, carrying or trading in
securities within the meaning of Regulation T of the Board of Governors of the Federal Reserve System, as amended from time to time, or for the purpose of reducing or retiring any indebtedness
which both (i) was originally incurred to purchase any such margin stock or other securities and (ii) was directly or indirectly secured by such margin stock or other securities. None of
the assets of the Company includes any such "margin stock." The Company has no present intention of acquiring any such "margin stock." 


        4.21.
Other Names. 


        The
businesses previously or presently conducted by the Company have not been conducted under any corporate, trade or fictitious name other than "Displaytech, Inc." 


        4.22.  Brokers. 


        No
broker, finder or investment banker or other party is entitled to any brokerage, finder's or other similar fee or commission in connection with this Agreement, any of the other
Restructure Documents, the Designation of Rights, or any of the transactions contemplated hereby or thereby. Any such fees
and commissions shall be the sole responsibility of the Company and in no circumstance shall the Purchaser have any liability therefor. 


        4.23.  Insurance. 



        (a)   Schedule 4.23(a) contains a list and description of all insurance policies maintained by or on behalf of the
Company on its assets, operations, properties and personnel. Such insurance is of the kind, covering such risks and in such amounts and with such deductibles and exclusions, as are consistent with
those maintained by businesses similarly situated to the Company and are, in the opinion of the Company, reasonable for the business, assets and properties of the Company. All such policies are in
full force and effect. 


        (b)   The
Company has not received any notice of cancellation or termination with respect to any material insurance policy thereof and there are no pending disputes or
controversies between the Company, on the one hand, and the carrier of any such insurance policy, on the other. 



9








   SCHEDULE OF EXCEPTIONS  


        The following is a list of schedules and exceptions to the representations and warranties made by Displaytech, Inc. (the "Company") in that certain Second
Amendment to Note Purchase Agreement (the "Agreement") dated February     , 2003 between the Company and Hewlett-Packard Company. 


Schedule 4.2(a)—(i) 



 Authorized capital stock of the Company: 



	Common Stock	 	25,000,000
	Preferred Stock	 	5,000,000






Schedule 4.2(a)—(ii)




 Number of designated shares in each Series or Class:  



	Series B Convertible Preferred Stock	 	750,000
	Series D Convertible Preferred Stock	 	510,000
	Series E-B Convertible Preferred Stock	 	500,000
	Series E-D Convertible Preferred Stock	 	510,000
	Series E-1 Senior Preferred Stock	 	600,000
	Series E-2 Senior Preferred Stock	 	400,000






Schedule 4.2(a)—(iii)




 Number of shares outstanding in each Series or Class after issuance of shares on Closing  



	Date:	 	 
	Common Stock	 	242
	Series B Convertible Preferred Stock	 	260,051
	Series D Convertible Preferred Stock	 	154,856
	Series E-1 Senior Preferred Stock	 	40,096
	Series E-2 Senior Preferred Stock	 	0
	Series E-B Convertible Preferred Stock	 	225,638
	Series E-D Convertible Preferred Stock	 	175,785






Schedule 4.2(a)—(1)




Shares of capital stock outstanding at Closing which were subject to preemptive rights when issued:


Except
for a small number of shares of Series B Convertible Preferred Stock obtained by individuals in the "reverse conversion" of Common Stock into the Series B, all outstanding shares
of Series B and Series D Preferred Convertible Stock were subject to preemptive rights when issued, but, after giving effect to the Certificates of Designation, no longer are. 




Schedule 4.2(a)—(2) 



Shares of capital stock outstanding at Closing which provide the holders thereof preemptive rights:


None




10







 





Schedule 4.2(b)




Number and purpose for which shares of the Company's Common Stock are reserved:  



	Shares Reserved
	 	Purpose

	740,000	 	Issuance of Options under the 1988 Incentive Stock Option Plan
	2,699,022	 	Issuance of Options under the 1998 Stock Incentive Plan
	309,765	 	Warrants Outstanding
	3,657,539	 	Conversion of the Series B Convertible Preferred Stock
	5,251,019	 	Conversion of the Series D Convertible Preferred Stock
	3,173,530	 	Conversion of the Series E-B Convertible Preferred Stock
	3,196,091	 	Conversion of the Series E-D Convertible Preferred Stock






Exception
§4.2(c) 



Agreements for options for which stock has not been reserved:


Consultants
to the Company have been granted options to purchase a total of 26,374 common shares that have not been issued under an existing Plan and which have not been reserved by the Company. 




Exception
§4.2(d) 



Potential registration rights to be granted include



	Shareholder
 
	 	Shares Owned
	 	Explanation

	University Research Corporation, assigned to University of Colorado Foundation, Inc., assigned to University Technology Corporation (current owner)	 	10 Series B Convertible Preferred shares	 	Subject to Stock Purchase Agreement dated May 1, 1990.






Schedule 4.2(e)




Other Agreements regarding voting of stock:


On
January 1, 1992 certain employees signed an Employee Stock Purchase and Restriction Agreement that obligated the employees to vote any shares purchased pursuant to stock options granted
under the Company's 1988 Incentive Stock Option Plan in favor of any merger or sale of the Company approved by the Company's Board of Directors. These agreements were later amended on March 31,
1995 to require the employees to vote their option shares in favor of the election of Richard Hokin and J. Kermit Birchfield, Jr. to the Company's Board of Directors. 




Schedule 4.2(f) 



Anti-dilution protections in effect under various Agreements:



	1.
	Hewlett-Packard
Company—Note Purchase Agreement dated February 12, 1999, as amended by Amendment No. 1, dated February 19, 1999, and the Second
Amendment to Note Purchase Agreement, dated February     , 2003, and the Amended and Restated Convertible Note maturing February 19, 2008



	2.
	Fleming
US Discovery Fund III, L.P.; Fleming US Discovery Offshore Fund III, L.P., DB Capital Partners SBIC, L.P., Kingdon Partners, L.P., Kingdon Associates, L.P., M. Kingdon Offshore
NV, and InterWest Capital, Inc.,—Stock Purchase Agreement dated July 30, 2001 


11







 

Antidilution
protection in above two agreements, as well as with respect to Series B Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E-B
Convertible Preferred Stock and Series E-D Convertible Preferred Stock, is limited to stock splits, combinations, reclassifications and the like. 




Schedule 4.2(h)




Owners of 5% or more of outstanding Capital Stock:



	InterWest Capital, Inc.*

Century America L.P.*	 	 
	JKB-Displaytech LLC*

J. Kermit Birchfield, Jr.*

Kingdon Associates, LP**

Kingdon Partners, LP**	 	 
	M. Kingdon Offshore, NV**

Fleming US Discovery Fund III, L.P.***

Fleming US Discovery Offshore Fund III, LP***	 	 
	DB Capital Partners SBIC, L.P.

Hewlett-Packard Company	 	 






	*	 	=	 	Combined
	**	 	=	 	Combined
	***	 	=	 	Combined






Schedule 4.5(a)




Defaults or Conflicts:




        [*****]



Schedule 4.5(b)



        Triggering of Antidilution or Preemptive Rights by the Execution of the Restructure Documents:



        None 


Schedule 4.6(a) 



 Disclosure Materials previously provided: 



	1.
	Displaytech, Inc.
Financial Statements, December 31, 2001 and 2000 (With Independent 



        Auditors'
Report Thereon) 


	2.
	Displaytech, Inc.
Financial Statements Through Q3 "02 (Unaudited) 



Schedule 4.9(a) 



 List of Benefit Plans:  




Medical
insurance, administered by Humana Insurance Co..

Dental insurance provided by MetLife

Vision Service Plan

Life Insurance provided by GE Financial Assurance Co.

Disability Insurance provided by GE Financial Assurance Co.

Displaytech, Inc. Profit Sharing and 401(k) Plan 


Schedule 4.9(k) 


12







 



 Accruals under Unfunded Benefit Plans:  




        None 


Schedule 4.11 



 All outstanding securities of the Company:  




        See attached 


Schedule 4.12(a)




 List of Intellectual Property:  




        See attached 


Exception
§4.12(a)(iii) 



 Statement re suspected infringement:  



[*****]



Exception
§4.12(b)(i) 



 Statement re grounds for claim against Company of patent infringement  



[*****] 


Exception
§4.12(b)(ii) 



 Statement re third party patent applications  



[*****] 


Exception
§4.12(c) 



 Statement re filing of prior art  



[*****]



Schedule 4.14




 Leased Property  




        The Company leases approximately 30,000 square feet of office and manufacturing space from Pratt Land LLC located at 2602 Clover Basin Drive, Longmont, CO. 


Schedule 4.15(b) 



 Customer Base  




        The Company's current customer base (customers who are actually purchasing display products in volume) consists of the following: 



Nissho
Electronics Corporation (for Minolta camera)

Miyota Co., Ltd. (for Sony camcorder)

Tekom, Inc. (included in HP camera) 




Regarding
Nissho and Minolta, the Company has been notified that Minolta will purchase the Company's electronic viewfinder for the current Dimage 7 model year, but not for next year's model. 


13







 

Schedule 4.16(a) 



 Environmental Compliance:  




        None 


Schedule 4.16(b) 



 Storage of Hazardous Materials  




        None 



Schedule 4.18 



 Offering of Shares  




        None 


Schedule 4.19 


        List the amount of all Indebtedness, any Lien with respect thereto, and a description of the agreement therefore:



	EQUIPMENT LEASES WITH

FOLLOWING LESSORS
 
	 	 
	 	MONTHLY

RENTAL
	 	LIABILITY

@1/31/03

	Colonial Pacific	 	 	 	1,569.75	 	1,569.75
	Granite Financial	 	 	 	1,016.69	 	3,942.13
	Transamerica	 	 	 	53,835.52	 	272,392.46
	Conesco	 	 	 	1,922.3	 	48,462.56
	 	 	TOTAL	 	58,344.26	 	326,366.90
	HP Convertible Note — 9% interest	 	 	 	 	 	13,367,500.00
	Cadwalader, Wickersham, & Taft Note	 	 	 	 	 	150,000.00
	Amkor Technologies Agreement	 	 	 	 	 	542,352.75
	 	 	 	 	TOTAL	 	14,386,219.65
	 	 	 	 	
	 	







In
addition to the Indebtedness listed above, as of January 31, 2003, there were outstanding promissory notes of the Company in favor of Fleming US Discovery Fund III, L.P., Fleming US
Discovery
Offshore Fund III, L.P. and InterWest Capital, Inc., in an aggregate principal amount of $1,200,000. All amounts owing thereunder shall be converted into shares of Series E-1
Senior Preferred Stock simultaneously with the closing of the transactions contemplated by the Agreement. 



Schedule 4.23(a) 



 List all the Company's insurance policies:  




Commercial
general liability insurance provided by The Hartford: 



Personal
Property

Business Income and Extra Expense

Accounts Receivable

Original Information Property

Hired and Non-owned Autos

General Liability Aggregate

Products Completed Operations Aggregate

Personal & Advertising Injury Limit

Manufacturer's Errors and Omissions Liability




14







 

Crime
Coverage, Employee Dishonesty

Commercial Catastrophe Liability

Worker's Compensation 




Life
Insurance/Individual provided by Sun Life of Canada for: 



Haviland
Wright and Mark Handschy (Chief Scientist) 




Policies
provided through AIG American International Companies 



Directors,
Officers and Private Company Liability Insurance

Employee Benefit Plan Fiduciary Liability Insurance 



15








SCHEDULE 4.11  



	Name
 
	 	Preferred

Series E-2

Stock
	 	Perferred

Series E-2

Stock

Purchase

Price
	 	Preferred

Series E-1

Stock
	 	Preferred

Series E-1

Stock

Purchase

Price
	 	Preferred

Series E-D

Convertible

Stock
	 	Preferred

Series E-D

Pro Forma on an as converted basis of $5.50
	 	Perferred

Series E-D

Convertible

Stock

Purchase

Price

	DB Capital Partners SBIC, L.P.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Fleming US Discovery Fund III, L.P.	 	—	 	—	 	17,281	 	1,728,100	 	70,589	 	1,283,436	 	7,058,900
	Fleming US Discovery Offshore Fund III, L.P.	 	—	 	—	 	2,767	 	276,700	 	11,340	 	206,182	 	1,134,000
	Hewlett Packard (Convertible Note)+Interest***	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Hewlett Packard	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Kingdon Offshore N.V.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Kingdon Partners, L.P.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Kingdon Associates, L.P.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Interwest Capital, Inc.	 	—	 	—	 	20,048	 	2,004,800	 	72,006	 	1,309,200	 	7,200,600
	Century America LLC	 	—	 	—	 	—	 	—	 	10,925	 	198,636	 	1,092,500
	JKB-Displaytech, LLC	 	—	 	—	 	—	 	—	 	10,925	 	198,636	 	1,092,500
	Birchfield, Kermit J.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Birchfield, Guthrie K	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Thomas Weisel Partners	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Nissho	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	D.A. Davidson	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	DADCO Incorporated	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Cadwalader	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Transamerica	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Tornga, Sondra	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Poppe, Leszek	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Sherri	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Handschy, John R A & Pauline	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Handschy, Mark A & Vernon, Terri H	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Vernon, Leland H & Twila F	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Pagano, Laura A	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Radzihovsky, Leo & Pao, Lucy	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Perry, James Elwood	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Kay	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Giles, Nancy	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Arnett, Kenneth E	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Young, George C & Gail V	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	O'Hara, E. Kieran & Clark, Evelyn	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	University Technology Corporation	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Sherman, Christopher J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Li, Edith W.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Skelly, David W	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Dessau, Daniel & Kathryn	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Quinn, Norman J. III	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Hirmes, Helene	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Masterson, Hugh J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Gross, Howard W.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Anne-Michelle	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Analysis Group Fund I, L.P.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Handschy, Mark A	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Barton, Richard D	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Spenner, Bruce F	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wright, Haviland	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lewis, Lloyd M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Clough, George E	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, David M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Clark, Noel	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, David M & Geneson, Cassandra	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, Jeffrey H.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Stuart III, L (Terry)	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Xue, Jiuzhi	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Cunningham, Jim D	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Sissom, Bradley	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Braun, Tim	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Chase, Holden	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Perry, Ann E.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lloyd, Susan M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Banas, David	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Doroski, David	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Pattee, Alan M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lahr, Heidi	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Sontag, Patricia E	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Pilz, Caren	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	McCurry, Ruth F	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Cunningham, Jill D.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Ellis, Beth L	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Malzbender, Rainer M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Mochizuki, Akihiro	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Crouch, Robert G.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Clayton, Gail M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Evans, Nellie P.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	McGraw, Stuart	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Drabik, Tim	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Her, Jin	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Miller, Richard O	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Jablonski, Dain A.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Papp, Richard	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Hartman, Gregory N	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Abbott, Thomas D	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Nessler, Ray	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Perlmutter, Stephen	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Frisk, Jeffrey	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Winkleman, Steven L	 	—	 	—	 	—	 	—	 	—	 	—	 	—











	Name
 
	 	Preferred

Series E-B

Convertible

Stock
	 	Preferred

Series E-B

Pro Forma

on an

as converted

basis of $7.11
	 	Preferred

Series E-B

Convertible

Stock

Purchase

Price
	 	Preferred

Series D

Convertible

Stock
	 	Preferred

Series D

Pro Forma

on an

as converted

basis of

current market $5.50
	 	Perferred

Series D

Convertible

Stock

Purchase Price

Price

	DB Capital Partners SBIC, L.P.	 	—	 	—	 	—	 	71,928	 	1,307,782	 	7,192,800
	Fleming US Discovery Fund III, L.P.	 	86,182	 	1,212,124	 	8,618,200	 	—	 	—	 	—
	Fleming US Discovery Offshore Fund III, L.P.	 	13,818	 	194,346	 	1,381,800	 	—	 	—	 	—
	Hewlett Packard (Convertible Note)+Interest***	 	—	 	—	 	—	 	—	 	—	 	—
	Hewlett Packard	 	—	 	—	 	—	 	—	 	—	 	—
	Kingdon Offshore N.V.	 	—	 	—	 	—	 	53,946	 	980,836	 	5,394,600
	Kingdon Partners, L.P.	 	—	 	—	 	—	 	5,754	 	104,618	 	575,400
	Kingdon Associates, L.P.	 	—	 	—	 	—	 	12,228	 	222,327	 	1,222,800
	Interwest Capital, Inc.	 	41,017	 	576,891	 	4,101,692	 	—	 	—	 	—
	Century America LLC	 	42,175	 	593,179	 	4,217,500	 	—	 	—	 	—
	JKB-Displaytech, LLC	 	20,330	 	285,935	 	2,033,000	 	—	 	—	 	—
	Birchfield, Kermit J.	 	10,603	 	149,128	 	1,060,300	 	—	 	—	 	—
	Birchfield, Guthrie K	 	513	 	7,215	 	51,300	 	—	 	—	 	—
	Thomas Weisel Partners	 	—	 	—	 	—	 	—	 	—	 	—
	Nissho	 	—	 	—	 	—	 	10,000	 	181,818	 	1,000,000
	D.A. Davidson	 	6,000	 	84,388	 	600,000	 	—	 	—	 	—
	DADCO Incorporated	 	5,000	 	70,323	 	500,000	 	—	 	—	 	—
	Cadwalader	 	—	 	—	 	—	 	—	 	—	 	—
	Transamerica	 	—	 	—	 	—	 	—	 	—	 	—
	Tornga, Sondra	 	—	 	—	 	—	 	—	 	—	 	—
	Poppe, Leszek	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Sherri	 	—	 	—	 	—	 	—	 	—	 	—
	Handschy, John R A& Pauline	 	—	 	—	 	—	 	—	 	—	 	—
	Handschy, Mark A& Vernon, Terri H	 	—	 	—	 	—	 	—	 	—	 	—
	Vernon, Leland H & Twila F	 	—	 	—	 	—	 	—	 	—	 	—
	Pagano, Laura A	 	—	 	—	 	—	 	—	 	—	 	—
	Radzihovsky, Leo & Pao, Lucy	 	—	 	—	 	—	 	—	 	—	 	—
	Perry, James Elwood	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Kay	 	—	 	—	 	—	 	—	 	—	 	—
	Giles, Nancy	 	—	 	—	 	—	 	—	 	—	 	—
	Arnett, Kenneth E	 	—	 	—	 	—	 	—	 	—	 	—
	Young, George C & Gail V	 	—	 	—	 	—	 	—	 	—	 	—
	O'Hara, E. Kieran & Clark, Evelyn	 	—	 	—	 	—	 	—	 	—	 	—
	University Technology Corporation	 	—	 	—	 	—	 	—	 	—	 	—
	Sherman, Christopher J	 	—	 	—	 	—	 	—	 	—	 	—
	Li, Edith W.	 	—	 	—	 	—	 	—	 	—	 	—
	Skelly, David W	 	—	 	—	 	—	 	—	 	—	 	—
	Dessau, Daniel & Kathryn	 	—	 	—	 	—	 	—	 	—	 	—
	Quinn, Norman J. III	 	—	 	—	 	—	 	—	 	—	 	—
	Hirmes, Helene	 	—	 	—	 	—	 	—	 	—	 	—
	Masterson, Hugh J	 	—	 	—	 	—	 	—	 	—	 	—
	Gross, Howard W.	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Anne-Michelle	 	—	 	—	 	—	 	—	 	—	 	—
	Analysis Group Fund I, L.P.	 	—	 	—	 	—	 	1,000	 	18,182	 	100,000
	Handschy, Mark A	 	—	 	—	 	—	 	—	 	—	 	—
	Barton, Richard D	 	—	 	—	 	—	 	—	 	—	 	—
	Spenner, Bruce F	 	—	 	—	 	—	 	—	 	—	 	—
	Wright, Haviland	 	—	 	—	 	—	 	—	 	—	 	—
	Lewis, Lloyd M	 	—	 	—	 	—	 	—	 	—	 	—
	Clough, George E	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, David M	 	—	 	—	 	—	 	—	 	—	 	—
	Clark, Noel	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, David M & Geneson, Cassandra	 	—	 	—	 	—	 	—	 	—	 	—
	Walba, Jeffrey H.	 	—	 	—	 	—	 	—	 	—	 	—
	Stuart III, L (Terry)	 	—	 	—	 	—	 	—	 	—	 	—
	Xue, Jiuzhi	 	—	 	—	 	—	 	—	 	—	 	—
	Cunningham, Jim D	 	—	 	—	 	—	 	—	 	—	 	—
	Sissom, Bradley	 	—	 	—	 	—	 	—	 	—	 	—
	Braun, Tim	 	—	 	—	 	—	 	—	 	—	 	—
	Chase, Holden	 	—	 	—	 	—	 	—	 	—	 	—
	Perry, Ann E.	 	—	 	—	 	—	 	—	 	—	 	—
	Lloyd, Susan M	 	—	 	—	 	—	 	—	 	—	 	—
	Banas, David	 	—	 	—	 	—	 	—	 	—	 	—
	Doroski, David	 	—	 	—	 	—	 	—	 	—	 	—
	Pattee, Alan M	 	—	 	—	 	—	 	—	 	—	 	—
	Lahr, Heidi	 	—	 	—	 	—	 	—	 	—	 	—
	Sontag, Patricia E	 	—	 	—	 	—	 	—	 	—	 	—
	Pilz, Caren	 	—	 	—	 	—	 	—	 	—	 	—
	McCurry, Ruth F	 	—	 	—	 	—	 	—	 	—	 	—
	Cunningham, Jill D.	 	—	 	—	 	—	 	—	 	—	 	—
	Ellis, Beth L	 	—	 	—	 	—	 	—	 	—	 	—
	Malzbender, Rainer M	 	—	 	—	 	—	 	—	 	—	 	—
	Mochizuki, Akihiro	 	—	 	—	 	—	 	—	 	—	 	—
	Crouch, Robert G.	 	—	 	—	 	—	 	—	 	—	 	—
	Clayton, Gail M	 	—	 	—	 	—	 	—	 	—	 	—
	Evans, Nellie P.	 	—	 	—	 	—	 	—	 	—	 	—
	McGraw, Stuart	 	—	 	—	 	—	 	—	 	—	 	—
	Drabik, Tim	 	—	 	—	 	—	 	—	 	—	 	—
	Her, Jin	 	—	 	—	 	—	 	—	 	—	 	—
	Miller, Richard O	 	—	 	—	 	—	 	—	 	—	 	—
	Jablonski, Dain A.	 	—	 	—	 	—	 	—	 	—	 	—
	Papp, Richard	 	—	 	—	 	—	 	—	 	—	 	—
	Hartman, Gregory N	 	—	 	—	 	—	 	—	 	—	 	—
	Abbott, Thomas D	 	—	 	—	 	—	 	—	 	—	 	—
	Nessler, Ray	 	—	 	—	 	—	 	—	 	—	 	—
	Perlmutter, Stephen	 	—	 	—	 	—	 	—	 	—	 	—
	Frisk, Jeffrey	 	—	 	—	 	—	 	—	 	—	 	—
	Winkleman, Steven L	 	—	 	—	 	—	 	—	 	—	 	—











	Name
 
	 	Preferred Series B

Convertible Stock
	 	Perferred Series B

on an as converted

basis of $7.11
	 	Perferred Series B

Convertible Stock
	 	Common Stock
	 	Common Stock

Purchase Price
	 	Total Shares

Stock Issued**

	DB Capital Partners SBIC, L.P.	 	100,000	 	1,406,470	 	10,000,000	 	—	 	 	 	2,714,252
	Fleming US Discovery Fund III, L.P.	 	—	 	—	 	—	 	—	 	 	 	2,512,841
	Fleming US Discovery Offshore Fund III, L.P.	 	—	 	—	 	—	 	—	 	 	 	403,295
	Hewlett Packard (Convertible Note)+Interest***	 	—	 	—	 	—	 	—	 	 	 	—
	Hewlett Packard	 	24,219	 	340,633	 	2,421,900	 	—	 	 	 	340,633
	Kingdon Offshore N.V.	 	80,414	 	1,130,999	 	8,041,400	 	—	 	 	 	2,111,835
	Kingdon Partners, L.P.	 	33,299	 	468,340	 	3,329,900	 	—	 	 	 	572,959
	Kingdon Associates, L.P.	 	19,480	 	273,980	 	1,948,000	 	—	 	 	 	496,308
	Interwest Capital, Inc.	 	—	 	—	 	—	 	—	 	 	 	1,906,139
	Century America LLC	 	—	 	—	 	—	 	—	 	 	 	791,815
	JKB-Displaytech, LLC	 	—	 	—	 	—	 	—	 	 	 	484,572
	Birchfield, Kermit J.	 	—	 	—	 	—	 	—	 	 	 	149,128
	Birchfield, Guthrie K	 	—	 	—	 	—	 	—	 	 	 	7,215
	Thomas Weisel Partners	 	—	 	—	 	—	 	—	 	 	 	—
	Nissho	 	—	 	—	 	—	 	—	 	 	 	181,818
	D.A. Davidson	 	—	 	 	 	 	 	 	 	 	 	84,388
	DADCO Incorporated	 	—	 	 	 	 	 	 	 	 	 	70,323
	Cadwalader	 	—	 	—	 	—	 	—	 	 	 	—
	Transamerica	 	—	 	—	 	—	 	—	 	 	 	—
	Tornga, Sondra	 	103	 	1,449	 	10,300	 	—	 	 	 	1,449
	Poppe, Leszek	 	62	 	872	 	6,200	 	—	 	 	 	872
	Wand, Sherri	 	55	 	774	 	5,500	 	—	 	 	 	774
	Handschy, John R A & Pauline	 	50	 	703	 	5,000	 	—	 	 	 	703
	Handschy, Mark A & Vernon, Terri H	 	50	 	703	 	5,000	 	—	 	 	 	703
	Vernon, Leland H & Twila F	 	50	 	703	 	5,000	 	—	 	 	 	703
	Pagano, Laura A	 	24	 	338	 	2,400	 	—	 	 	 	338
	Radzihovsky, Leo & Pao, Lucy	 	23	 	323	 	2,300	 	—	 	 	 	323
	Perry, James Elwood	 	20	 	281	 	2,000	 	—	 	 	 	281
	Wand, Kay	 	20	 	281	 	2,000	 	—	 	 	 	281
	Giles, Nancy	 	17	 	239	 	1,700	 	—	 	 	 	239
	Arnett, Kenneth E	 	17	 	239	 	1,700	 	—	 	 	 	239
	Young, George C & Gail V	 	15	 	211	 	1,500	 	—	 	 	 	211
	O'Hara, E. Kieran & Clark, Evelyn	 	10	 	141	 	1,000	 	—	 	 	 	141
	University Technology Corporation	 	10	 	141	 	1,000	 	—	 	 	 	141
	Sherman, Christopher J	 	9	 	127	 	900	 	—	 	 	 	127
	Li, Edith W.	 	7	 	98	 	700	 	—	 	 	 	98
	Skelly, David W	 	7	 	98	 	700	 	—	 	 	 	98
	Dessau, Daniel & Kathryn	 	4	 	56	 	400	 	—	 	 	 	56
	Quinn, Norman J. III	 	4	 	56	 	400	 	—	 	 	 	56
	Hirmes, Helene	 	3	 	42	 	300	 	—	 	 	 	42
	Masterson, Hugh J	 	2	 	28	 	200	 	—	 	 	 	28
	Gross, Howard W.	 	1	 	14	 	100	 	—	 	 	 	14
	Wand, Anne-Michelle	 	1	 	14	 	100	 	—	 	 	 	14
	Analysis Group Fund I, L.P.	 	—	 	—	 	—	 	—	 	 	 	18,182
	Handschy, Mark A	 	5	 	70	 	500	 	—	 	 	 	70
	Barton, Richard D	 	—	 	—	 	—	 	—	 	 	 	—
	Spenner, Bruce F	 	—	 	—	 	—	 	—	 	 	 	—
	Wright, Haviland	 	—	 	—	 	—	 	—	 	 	 	—
	Lewis, Lloyd M	 	—	 	—	 	—	 	—	 	 	 	—
	Clough, George E	 	21	 	295	 	2,100	 	—	 	 	 	295
	Walba, David M	 	130	 	1,828	 	13,000	 	—	 	 	 	1,828
	Clark, Noel	 	405	 	5,696	 	40,500	 	—	 	 	 	5,696
	Walba, David M & Geneson, Cassandra	 	105	 	1,477	 	10,500	 	—	 	 	 	1,477
	Walba, Jeffrey H.	 	90	 	1,266	 	9,000	 	—	 	 	 	1,266
	Stuart III, L (Terry)	 	390	 	5,485	 	39,000	 	—	 	 	 	5,485
	Xue, Jiuzhi	 	69	 	970	 	6,900	 	—	 	 	 	970
	Cunningham, Jim D	 	134	 	1,885	 	13,400	 	—	 	 	 	1,885
	Sissom, Bradley	 	118	 	1,660	 	11,800	 	—	 	 	 	1,660
	Braun, Tim	 	117	 	1,646	 	11,700	 	—	 	 	 	1,646
	Chase, Holden	 	10	 	141	 	1,000	 	—	 	 	 	141
	Perry, Ann E.	 	81	 	1,139	 	8,100	 	—	 	 	 	1,139
	Lloyd, Susan M	 	3	 	42	 	300	 	—	 	 	 	42
	Banas, David	 	8	 	113	 	800	 	—	 	 	 	113
	Doroski, David	 	55	 	774	 	5,500	 	—	 	 	 	774
	Pattee, Alan M	 	12	 	169	 	1,200	 	—	 	 	 	169
	Lahr, Heidi	 	44	 	619	 	4,400	 	—	 	 	 	619
	Sontag, Patricia E	 	27	 	380	 	2,700	 	—	 	 	 	380
	Pilz, Caren	 	25	 	352	 	2,500	 	—	 	 	 	352
	McCurry, Ruth F	 	15	 	211	 	1,500	 	—	 	 	 	211
	Cunningham, Jill D.	 	7	 	98	 	700	 	—	 	 	 	98
	Ellis, Beth L	 	—	 	—	 	—	 	—	 	 	 	—
	Malzbender, Rainer M	 	—	 	—	 	—	 	—	 	 	 	—
	Mochizuki, Akihiro	 	—	 	—	 	—	 	—	 	 	 	—
	Crouch, Robert G.	 	—	 	—	 	—	 	—	 	 	 	—
	Clayton, Gail M	 	—	 	—	 	—	 	—	 	 	 	—
	Evans, Nellie P.	 	—	 	—	 	—	 	—	 	 	 	—
	McGraw, Stuart	 	—	 	—	 	—	 	—	 	 	 	—
	Drabik, Tim	 	—	 	—	 	—	 	—	 	 	 	—
	Her, Jin	 	—	 	—	 	—	 	—	 	 	 	—
	Miller, Richard O	 	—	 	—	 	—	 	—	 	 	 	—
	Jablonski, Dain A.	 	—	 	—	 	—	 	—	 	 	 	—
	Papp, Richard	 	—	 	—	 	—	 	—	 	 	 	—
	Hartman, Gregory N	 	—	 	—	 	—	 	—	 	 	 	—
	Abbott, Thomas D	 	—	 	—	 	—	 	—	 	 	 	—
	Nessler, Ray	 	—	 	—	 	—	 	—	 	 	 	—
	Perlmutter, Stephen	 	—	 	—	 	—	 	—	 	 	 	—
	Frisk, Jeffrey	 	—	 	—	 	—	 	—	 	 	 	—
	Winkleman, Steven L	 	—	 	—	 	—	 	—	 	 	 	—











	Name
 
	 	% of Total

Shares

Stock

Issued
	 	No. of

Warrents
	 	No. of Options

Outstanding
	 	Exercise Amount
	 	Total

Securities

Owned**
	 	% of Total

Securities

Issued
	 	Investor Category

	DB Capital Partners SBIC, L.P.	 	21.07	%	—	 	—	 	—	 	2,714,252	 	15.58	%	Outside Investor
	Fleming US Discovery Fund III, L.P.	 	19.51	%	—	 	—	 	—	 	2,512,841	 	14.43	%	Outside Investor
	Fleming US Discovery Offshore Fund III, L.P.	 	3.13	%	—	 	—	 	—	 	403,295	 	2.32	%	Outside Investor
	Hewlett Packard (Convertible Note)+Interest***	 	0.00	%	—	 	—	 	—	 	2,435,455	 	13.98	%	Outside Investor
	Hewlett Packard	 	2.64	%	11,532	 	—	 	—	 	352,165	 	2.02	%	Outside Investor
	Kingdon Offshore N.V.	 	16.39	%	—	 	—	 	—	 	2,111,835	 	12.12	%	Outside Investor
	Kingdon Partners, L.P.	 	4.45	%	—	 	—	 	—	 	572,959	 	3.29	%	Outside Investor
	Kingdon Associates, L.P.	 	3.85	%	—	 	—	 	—	 	496,308	 	2.85	%	Outside Investor
	Interwest Capital, Inc.	 	14.80	%	—	 	—	 	—	 	1,906,139	 	10.94	%	Outside Investor
	Century America LLC	 	6.15	%	—	 	—	 	—	 	791,815	 	4.55	%	Outside Investor
	JKB-Displaytech, LLC	 	3.76	%	—	 	—	 	—	 	484,572	 	2.78	%	Outside Investor
	Birchfield, Kermit J.	 	1.16	%	—	 	20,000	 	258,750	 	169,128	 	0.97	%	Outside Investor
	Birchfield, Guthrie K	 	0.06	%	—	 	—	 	—	 	7,215	 	0.04	%	Outside Investor
	Thomas Weisel Partners	 	0.00	%	240,000	 	—	 	—	 	240,000	 	1.38	%	Outside Investor
	Nissho	 	1.41	%	—	 	—	 	—	 	181,818	 	1.04	%	Outside Investor
	D.A. Davidson	 	0.66	%	3,700	 	—	 	—	 	88,088	 	0.51	%	Outside Investor
	DADCO Incorporated	 	0.55	%	—	 	—	 	—	 	70,323	 	0.40	%	Outside Investor
	Cadwalader	 	0.00	%	34,091	 	—	 	—	 	34,091	 	0.20	%	Outside Investor
	Transamerica	 	0.00	%	16,667	 	—	 	—	 	16,667	 	0.10	%	Outside Investor
	Tornga, Sondra	 	0.01	%	—	 	—	 	—	 	1,449	 	0.01	%	Outside Investor
	Poppe, Leszek	 	0.01	%	—	 	—	 	—	 	872	 	0.01	%	Outside Investor
	Wand, Sherri	 	0.01	%	—	 	—	 	—	 	774	 	0.00	%	Outside Investor
	Handschy, John R A & Pauline	 	0.01	%	—	 	—	 	—	 	703	 	0.00	%	Outside Investor
	Handschy, Mark A & Vernon, Terri H	 	0.01	%	—	 	—	 	—	 	703	 	0.00	%	Outside Investor
	Vernon, Leland H & Twila F	 	0.01	%	—	 	—	 	—	 	703	 	0.00	%	Outside Investor
	Pagano, Laura A	 	0.00	%	—	 	—	 	—	 	338	 	0.00	%	Outside Investor
	Radzihovsky, Leo & Pao, Lucy	 	0.00	%	—	 	—	 	—	 	323	 	0.00	%	Outside Investor
	Perry, James Elwood	 	0.00	%	—	 	—	 	—	 	281	 	0.00	%	Outside Investor
	Wand, Kay	 	0.00	%	—	 	—	 	—	 	281	 	0.00	%	Outside Investor
	Giles, Nancy	 	0.00	%	—	 	—	 	—	 	239	 	0.00	%	Outside Investor
	Arnett, Kenneth E	 	0.00	%	—	 	—	 	—	 	239	 	0.00	%	Outside Investor
	Young, George C & Gail V	 	0.00	%	—	 	—	 	—	 	211	 	0.00	%	Outside Investor
	O'Hara, E. Kieran & Clark, Evelyn	 	0.00	%	—	 	—	 	—	 	141	 	0.00	%	Outside Investor
	University Technology Corporation	 	0.00	%	—	 	—	 	—	 	141	 	0.00	%	Outside Investor
	Sherman, Christopher J	 	0.00	%	—	 	—	 	—	 	127	 	0.00	%	Outside Investor
	Li, Edith W.	 	0.00	%	—	 	—	 	—	 	98	 	0.00	%	Outside Investor
	Skelly, David W	 	0.00	%	—	 	—	 	—	 	98	 	0.00	%	Outside Investor
	Dessau, Daniel & Kathryn	 	0.00	%	—	 	—	 	—	 	56	 	0.00	%	Outside Investor
	Quinn, Norman J. III	 	0.00	%	—	 	—	 	—	 	56	 	0.00	%	Outside Investor
	Hirmes, Helene	 	0.00	%	—	 	—	 	—	 	42	 	0.00	%	Outside Investor
	Masterson, Hugh J	 	0.00	%	—	 	—	 	—	 	28	 	0.00	%	Outside Investor
	Gross, Howard W.	 	0.00	%	—	 	—	 	—	 	14	 	0.00	%	Outside Investor
	Wand, Anne-Michelle	 	0.00	%	—	 	—	 	—	 	14	 	0.00	%	Outside Investor
	Analysis Group Fund I, L.P.	 	0.14	%	—	 	—	 	—	 	18,182	 	0.10	%	Outside Investor
	Handschy, Mark A	 	0.00	%	—	 	262,525	 	1,819,978	 	262,595	 	1.51	%	Management
	Barton, Richard D	 	0.00	%	—	 	218,500	 	1,458,250	 	218,500	 	1.25	%	Management
	Spenner, Bruce F	 	0.00	%	—	 	210,000	 	1,895,000	 	210,000	 	1.21	%	Management
	Wright, Haviland	 	0.00	%	—	 	210,000	 	1,860,000	 	210,000	 	1.21	%	Management
	Lewis, Lloyd M	 	0.00	%	—	 	95,500	 	591,750	 	95,500	 	0.55	%	Management
	Clough, George E	 	0.00	%	—	 	118,143	 	873,957	 	118,438	 	0.68	%	Management
	Walba, David M	 	0.01	%	—	 	30,000	 	292,500	 	31,828	 	0.18	%	Founder
	Clark, Noel	 	0.04	%	—	 	20,000	 	170,000	 	25,696	 	0.15	%	Founder
	Walba, David M & Geneson, Cassandra	 	0.01	%	—	 	—	 	—	 	1,477	 	0.01	%	Founder
	Walba, Jeffrey H.	 	0.01	%	—	 	—	 	—	 	1,266	 	0.01	%	Founder
	Stuart III, L (Terry)	 	0.04	%	—	 	—	 	—	 	5,485	 	0.03	%	Employee, terminated
	Xue, Jiuzhi	 	0.01	%	—	 	4,000	 	34,000	 	4,970	 	0.03	%	Employee, terminated
	Cunningham, Jim D	 	0.01	%	—	 	—	 	—	 	1,885	 	0.01	%	Employee, terminated
	Sissom, Bradley	 	0.01	%	—	 	—	 	—	 	1,660	 	0.01	%	Employee, terminated
	Braun, Tim	 	0.01	%	—	 	—	 	—	 	1,646	 	0.01	%	Employee, terminated
	Chase, Holden	 	0.00	%	—	 	1,042	 	8,854	 	1,182	 	0.01	%	Employee, terminated
	Perry, Ann E.	 	0.01	%	—	 	—	 	—	 	1,139	 	0.01	%	Employee, terminated
	Lloyd, Susan M	 	0.00	%	—	 	896	 	7,615	 	938	 	0.01	%	Employee, terminated
	Banas, David	 	0.00	%	—	 	813	 	6,906	 	925	 	0.01	%	Employee, terminated
	Doroski, David	 	0.01	%	—	 	—	 	—	 	774	 	0.00	%	Employee, terminated
	Pattee, Alan M	 	0.00	%	—	 	531	 	4,516	 	700	 	0.00	%	Employee, terminated
	Lahr, Heidi	 	0.00	%	—	 	—	 	—	 	619	 	0.00	%	Employee, terminated
	Sontag, Patricia E	 	0.00	%	—	 	—	 	—	 	380	 	0.00	%	Employee, terminated
	Pilz, Caren	 	0.00	%	—	 	—	 	—	 	352	 	0.00	%	Employee, terminated
	McCurry, Ruth F	 	0.00	%	—	 	—	 	—	 	211	 	0.00	%	Employee, terminated
	Cunningham, Jill D.	 	0.00	%	—	 	—	 	—	 	98	 	0.00	%	Employee, terminated
	Ellis, Beth L	 	0.00	%	—	 	30,000	 	255,000	 	30,000	 	0.17	%	Employee, terminated
	Malzbender, Rainer M	 	0.00	%	—	 	13,312	 	73,219	 	13,312	 	0.08	%	Employee, terminated
	Mochizuki, Akihiro	 	0.00	%	—	 	11,500	 	63,250	 	11,500	 	0.07	%	Employee, terminated
	Crouch, Robert G.	 	0.00	%	—	 	4,167	 	125,000	 	4,167	 	0.02	%	Employee, terminated
	Clayton, Gail M	 	0.00	%	—	 	3,625	 	19,938	 	3,625	 	0.02	%	Employee, terminated
	Evans, Nellie P.	 	0.00	%	—	 	2,771	 	31,165	 	2,771	 	0.02	%	Employee, terminated
	McGraw, Stuart	 	0.00	%	—	 	2,175	 	11,963	 	2,175	 	0.01	%	Employee, terminated
	Drabik, Tim	 	0.00	%	—	 	1,889	 	1,889	 	1,889	 	0.01	%	Employee, terminated
	Her, Jin	 	0.00	%	—	 	1,778	 	241,466	 	1,778	 	0.01	%	Employee, terminated
	Miller, Richard O	 	0.00	%	—	 	1,698	 	25,470	 	1,698	 	0.01	%	Employee, terminated
	Jablonski, Dain A.	 	0.00	%	—	 	1,163	 	6,394	 	1,163	 	0.01	%	Employee, terminated
	Papp, Richard	 	0.00	%	—	 	729	 	10,938	 	729	 	0.00	%	Employee, terminated
	Hartman, Gregory N	 	0.00	%	—	 	500	 	4,250	 	500	 	0.00	%	Employee, terminated
	Abbott, Thomas D	 	0.00	%	—	 	7,188	 	88,047	 	7,188	 	0.04	%	Employee, terminated
	Nessler, Ray	 	0.00	%	—	 	4,917	 	73,750	 	4,917	 	0.03	%	Employee, terminated
	Perlmutter, Stephen	 	0.00	%	—	 	3,000	 	25,500	 	3,000	 	0.02	%	Employee, terminated
	Frisk, Jeffrey	 	0.00	%	—	 	2,677	 	38,781	 	2,677	 	0.02	%	Employee, terminated
	Winkleman, Steven L	 	0.00	%	—	 	2,417	 	23,250	 	2,417	 	0.01	%	Employee, terminated











	Name
 
	 	Preferred

Series E-2

Stock
	 	Perferred

Series E-2

Stock

Purchase

Price
	 	Preferred

Series E-1

Stock
	 	Perferred Series E-

1 Stock Purchase

Price
	 	Preferred Series

E-D Convertible

Stock
	 	Preferred Series E-

D Pro Forma on

an as converted

basis of $5.50
	 	Perferred Series E-

D Convertible Stock

Purchase Price

	Crandall, Charles	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Gough, Neil	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Phillips, Wayne G	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Gerhardt, Thomas J.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Counihan, Kevin	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Shoffner, Gregory D	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Goranson, Kelly J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Langwell, Benjamin T	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	(Johnson) Wright, Angie A	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Harmon, Roxana J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Chang, Tiee-Yuh (Tammy)	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Martinez, Linda R	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	King, Jennifer M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Gallentine, Delores R	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Artigliere, Anthony	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Michael D	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	O'Callaghan, Michael J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Thurmes, William N	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Vohra, Rohini T	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Meadows, Michael R & McCormick,	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Regina A	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Meadows, Michael R	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Wieseler, Todd G.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Skaare, David K	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Berliner, Christopher J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Huffman, William	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Taylor, James	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Jagemalm, Pontus A.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Reinhard, Steven	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Yee, Michael	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	McConahy, Brian	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Low, Chin Chor	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	More, Kundalika M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Ferguson, Rachel	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lewis, Susan M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Parghi, Deven	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Dallas, James	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Larsen, Per	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Walker, Christopher	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	O'Neill, Matthew B	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Harmes, Benjamin L	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lundie, Gregory P	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Koprowski, Brian C	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Yang, Su	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	O'Donnell, Patrick	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Elquest, Douglas K	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Goranson, Pamela J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Keene, Julie	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Shiba, Eitoku	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Jordan, Belinda	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Feddersen, Jody M	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Arno, Erin	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Cohn, Sarah J	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Diehl, Melissa	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Hokin, Richard	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Swanson, Stanley R.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Dozier, Glenn	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Weinberger, David	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Kostanecki, Andrew T.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Everets, John	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	McLean, Roger	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Gaalema, Stephen	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Eppner, Gerald A.	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Black Forest Engineering,	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Zadow, Jerry	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Ward, David	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	Lane, William Kerry	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	—	 	—	 	40,096	 	4,009,600	 	175,785	 	3,196,091	 	17,578,500
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	—	 	—	 	40,096.0000	 	4,009,600.0000	 	175,785.0000	 	3,196,090.9091	 	17,578,500.0000











	Name
 
	 	Preferred Series

E-B Convertible

Stock
	 	Perferred Series E-

B Pro Forma on

an as converted

basis of $7.11
	 	Perferred Series E-

B Convertible Stock

Purchase Price
	 	Preferred

Series

D Convertible

Stock
	 	Preferred Series

D Pro Forma on

an as converted

basis of current

market $5.50
	 	Perferred Series D

Convertible Stock

Purchase Price

	Crandall, Charles	 	—	 	—	 	—	 	—	 	—	 	—
	Gough, Neil	 	—	 	—	 	—	 	—	 	—	 	—
	Phillips, Wayne G	 	—	 	—	 	—	 	—	 	—	 	—
	Gerhardt, Thomas J.	 	—	 	—	 	—	 	—	 	—	 	—
	Counihan, Kevin	 	—	 	—	 	—	 	—	 	—	 	—
	Shoffner, Gregory D	 	—	 	—	 	—	 	—	 	—	 	—
	Goranson, Kelly J	 	—	 	—	 	—	 	—	 	—	 	—
	Langwell, Benjamin T	 	—	 	—	 	—	 	—	 	—	 	—
	(Johnson) Wright, Angie A	 	—	 	—	 	—	 	—	 	—	 	—
	Harmon, Roxana J	 	—	 	—	 	—	 	—	 	—	 	—
	Chang, Tiee-Yuh (Tammy)	 	—	 	—	 	—	 	—	 	—	 	—
	Martinez, Linda R	 	—	 	—	 	—	 	—	 	—	 	—
	King, Jennifer M	 	—	 	—	 	—	 	—	 	—	 	—
	Gallentine, Delores R	 	—	 	—	 	—	 	—	 	—	 	—
	Artigliere, Anthony	 	—	 	—	 	—	 	—	 	—	 	—
	Wand, Michael D	 	—	 	—	 	—	 	—	 	—	 	—
	O'Callaghan, Michael J	 	—	 	—	 	—	 	—	 	—	 	—
	Thurmes, William N	 	—	 	—	 	—	 	—	 	—	 	—
	Vohra, Rohini T	 	—	 	—	 	—	 	—	 	—	 	—
	Meadows, Michael R & McCormick,	 	—	 	—	 	—	 	—	 	—	 	—
	Regina A	 	 	 	 	 	 	 	 	 	 	 	 
	Meadows, Michael R	 	—	 	—	 	—	 	—	 	—	 	—
	Wieseler, Todd G.	 	—	 	—	 	—	 	—	 	—	 	—
	Skaare, David K	 	—	 	—	 	—	 	—	 	—	 	—
	Berliner, Christopher J	 	—	 	—	 	—	 	—	 	—	 	—
	Huffman, William	 	—	 	—	 	—	 	—	 	—	 	—
	Taylor, James	 	—	 	—	 	—	 	—	 	—	 	—
	Jagemalm, Pontus A.	 	—	 	—	 	—	 	—	 	—	 	—
	Reinhard, Steven	 	—	 	—	 	—	 	—	 	—	 	—
	Yee, Michael	 	—	 	—	 	—	 	—	 	—	 	—
	McConahy, Brian	 	—	 	—	 	—	 	—	 	—	 	—
	Low, Chin Chor	 	—	 	—	 	—	 	—	 	—	 	—
	More, Kundalika M	 	—	 	—	 	—	 	—	 	—	 	—
	Ferguson, Rachel	 	—	 	—	 	—	 	—	 	—	 	—
	Lewis, Susan M	 	—	 	—	 	—	 	—	 	—	 	—
	Parghi, Deven	 	—	 	—	 	—	 	—	 	—	 	—
	Dallas, James	 	—	 	—	 	—	 	—	 	—	 	—
	Larsen, Per	 	—	 	—	 	—	 	—	 	—	 	—
	Walker, Christopher	 	—	 	—	 	—	 	—	 	—	 	—
	O'Neill, Matthew B	 	—	 	—	 	—	 	—	 	—	 	—
	Harmes, Benjamin L	 	—	 	—	 	—	 	—	 	—	 	—
	Lundie, Gregory P	 	—	 	—	 	—	 	—	 	—	 	—
	Koprowski, Brian C	 	—	 	—	 	—	 	—	 	—	 	—
	Yang, Su	 	—	 	—	 	—	 	—	 	—	 	—
	O'Donnell, Patrick	 	—	 	—	 	—	 	—	 	—	 	—
	Elquest, Douglas K	 	—	 	—	 	—	 	—	 	—	 	—
	Goranson, Pamela J	 	—	 	—	 	—	 	—	 	—	 	—
	Keene, Julie	 	—	 	—	 	—	 	—	 	—	 	—
	Shiba, Eitoku	 	—	 	—	 	—	 	—	 	—	 	—
	Jordan, Belinda	 	—	 	—	 	—	 	—	 	—	 	—
	Feddersen, Jody M	 	—	 	—	 	—	 	—	 	—	 	—
	Arno, Erin	 	—	 	—	 	—	 	—	 	—	 	—
	Cohn, Sarah J	 	—	 	—	 	—	 	—	 	—	 	—
	Diehl, Melissa	 	—	 	—	 	—	 	—	 	—	 	—
	Hokin, Richard	 	—	 	—	 	—	 	—	 	—	 	—
	Swanson, Stanley R.	 	—	 	—	 	—	 	—	 	—	 	—
	Dozier, Glenn	 	—	 	—	 	—	 	—	 	—	 	—
	Weinberger, David	 	—	 	—	 	—	 	—	 	—	 	—
	Kostanecki, Andrew T.	 	—	 	—	 	—	 	—	 	—	 	—
	Everets, John	 	—	 	—	 	—	 	—	 	—	 	—
	McLean, Roger	 	—	 	—	 	—	 	—	 	—	 	—
	Gaalema, Stephen	 	—	 	—	 	—	 	—	 	—	 	—
	Eppner, Gerald A.	 	—	 	—	 	—	 	—	 	—	 	—
	Black Forest Engineering,	 	—	 	—	 	—	 	—	 	—	 	—
	Zadow, Jerry	 	—	 	—	 	—	 	—	 	—	 	—
	Ward, David	 	—	 	—	 	—	 	—	 	—	 	—
	Lane, William Kerry	 	—	 	—	 	—	 	—	 	—	 	—
	 	 	
	 	
	 	
	 	
	 	
	 	

	 	 	225,638	 	3,173,528	 	22,563,792	 	154,856	 	2,815,564	 	15,485,600
	 	 	
	 	
	 	
	 	
	 	
	 	

	 	 	225,638.0000	 	3,173,528.4402	 	22,563,792.0000	 	154,856.0000	 	2,815,563.6364	 	15,485,600.0000











	Name
 
	 	Preferred Series B

Convertible Stock
	 	Perferred Series B on an

as converted basis of $7.11
	 	Perferred Series B

Convertible Stock

Purchase Price
	 	Common Stock
	 	Common Stock

Purchase Price
	 	Total Shares

Stock Issued**

	Crandall, Charles	 	3	 	42	 	300	 	—	 	 	 	42
	Gough, Neil	 	—	 	—	 	—	 	—	 	 	 	—
	Phillips, Wayne G	 	—	 	—	 	—	 	—	 	 	 	—
	Gerhardt, Thomas J.	 	—	 	—	 	—	 	—	 	 	 	—
	Counihan, Kevin	 	—	 	—	 	—	 	—	 	 	 	—
	Shoffner, Gregory D	 	—	 	—	 	—	 	—	 	 	 	—
	Goranson, Kelly J	 	—	 	—	 	—	 	—	 	 	 	—
	Langwell, Benjamin T	 	—	 	—	 	—	 	—	 	 	 	—
	(Johnson) Wright, Angie A	 	—	 	—	 	—	 	—	 	 	 	—
	Harmon, Roxana J	 	—	 	—	 	—	 	—	 	 	 	—
	Chang, Tiee-Yuh (Tammy)	 	—	 	—	 	—	 	—	 	 	 	—
	Martinez, Linda R	 	—	 	—	 	—	 	—	 	 	 	—
	King, Jennifer M	 	—	 	—	 	—	 	—	 	 	 	—
	Gallentine, Delores R	 	—	 	—	 	—	 	—	 	 	 	—
	Artigliere, Anthony	 	—	 	—	 	—	 	—	 	 	 	—
	Wand, Michael D	 	55	 	774	 	5,500	 	—	 	 	 	774
	O'Callaghan, Michael J	 	8	 	113	 	800	 	—	 	 	 	113
	Thurmes, William N	 	10	 	141	 	1,000	 	—	 	 	 	141
	Vohra, Rohini T	 	10	 	141	 	1,000	 	—	 	 	 	141
	Meadows, Michael R & McCormick, Regina A	 	110	 	1,547	 	11,000	 	—	 	 	 	1,547
	Meadows, Michael R	 	8	 	113	 	800	 	—	 	 	 	113
	Wieseler, Todd G.	 	—	 	—	 	—	 	—	 	 	 	—
	Skaare, David K	 	—	 	—	 	—	 	—	 	 	 	—
	Berliner, Christopher J	 	—	 	—	 	—	 	—	 	 	 	—
	Huffman, William	 	—	 	—	 	—	 	—	 	 	 	—
	Taylor, James	 	—	 	—	 	—	 	—	 	 	 	—
	Jagemalm, Pontus A.	 	—	 	—	 	—	 	—	 	 	 	—
	Reinhard, Steven	 	—	 	—	 	—	 	—	 	 	 	—
	Yee, Michael	 	—	 	—	 	—	 	—	 	 	 	—
	McConahy, Brian	 	—	 	—	 	—	 	—	 	 	 	—
	Low, Chin Chor	 	—	 	—	 	—	 	—	 	 	 	—
	More, Kundalika M	 	—	 	—	 	—	 	242	 	266.20	 	242
	Ferguson, Rachel	 	—	 	—	 	—	 	—	 	 	 	—
	Lewis, Susan M	 	—	 	—	 	—	 	—	 	 	 	—
	Parghi, Deven	 	—	 	—	 	—	 	—	 	 	 	—
	Dallas, James	 	—	 	—	 	—	 	—	 	 	 	—
	Larsen, Per	 	—	 	—	 	—	 	—	 	 	 	—
	Walker, Christopher	 	—	 	—	 	—	 	—	 	 	 	—
	O'Neill, Matthew B	 	—	 	—	 	—	 	—	 	 	 	—
	Harmes, Benjamin L	 	—	 	—	 	—	 	—	 	 	 	—
	Lundie, Gregory P	 	—	 	—	 	—	 	—	 	 	 	—
	Koprowski, Brian C	 	—	 	—	 	—	 	—	 	 	 	—
	Yang, Su	 	—	 	—	 	—	 	—	 	 	 	—
	O'Donnell, Patrick	 	—	 	—	 	—	 	—	 	 	 	—
	Elquest, Douglas K	 	—	 	—	 	—	 	—	 	 	 	—
	Goranson, Pamela J	 	—	 	—	 	—	 	—	 	 	 	—
	Keene, Julie	 	—	 	—	 	—	 	—	 	 	 	—
	Shiba, Eitoku	 	—	 	—	 	—	 	—	 	 	 	—
	Jordan, Belinda	 	—	 	—	 	—	 	—	 	 	 	—
	Feddersen, Jody M	 	—	 	—	 	—	 	—	 	 	 	—
	Arno, Erin	 	—	 	—	 	—	 	—	 	 	 	—
	Cohn, Sarah J	 	—	 	—	 	—	 	—	 	 	 	—
	Diehl, Melissa	 	—	 	—	 	—	 	—	 	 	 	—
	Hokin, Richard	 	—	 	—	 	—	 	—	 	 	 	—
	Swanson, Stanley R.	 	—	 	—	 	—	 	—	 	 	 	—
	Dozier, Glenn	 	—	 	—	 	—	 	—	 	 	 	—
	Weinberger, David	 	—	 	—	 	—	 	—	 	 	 	—
	Kostanecki, Andrew T.	 	—	 	—	 	—	 	—	 	 	 	—
	Everets, John	 	—	 	—	 	—	 	—	 	 	 	—
	McLean, Roger	 	—	 	—	 	—	 	—	 	 	 	—
	Gaalema, Stephen	 	—	 	—	 	—	 	—	 	 	 	—
	Eppner, Gerald A.	 	—	 	—	 	—	 	—	 	 	 	—
	Black Forest Engineering,	 	—	 	—	 	—	 	—	 	 	 	—
	Zadow, Jerry	 	—	 	—	 	—	 	—	 	 	 	—
	Ward, David	 	—	 	—	 	—	 	—	 	 	 	—
	Lane, William Kerry	 	—	 	—	 	—	 	—	 	 	 	—
	 	 	
	 	
	 	
	 	
	 	
	 	

	 	 	260,051	 	3,657,539	 	26,005,100	 	242	 	266.20	 	12,883,060
	 	 	
	 	
	 	
	 	
	 	
	 	

	 	 	260,051.0000	 	3,657,538.6779	 	26,005,100.0000	 	242.0000	 	266.2000	 	12,883,059.6636











	Name
 
	 	% of Total

Shares

Stock

Issued
	 	No. of

Warrents
	 	No. of Options

Outstanding
	 	Exercise Amount
	 	Total

Securities

Owned**
	 	% of Total

Securities

Issued
	 	Investor Category

	Crandall, Charles	 	0.00	%	—	 	2,250	 	19,125	 	2,292	 	0.01	%	Employee, terminated
	Gough, Neil	 	0.00	%	—	 	1,438	 	43,125	 	1,438	 	0.01	%	Employee, terminated
	Phillips, Wayne G	 	0.00	%	—	 	1,188	 	17,813	 	1,188	 	0.01	%	Employee, terminated
	Gerhardt, Thomas J.	 	0.00	%	—	 	1,000	 	30,000	 	1,000	 	0.01	%	Employee, terminated
	Counihan, Kevin	 	0.00	%	—	 	883	 	8,050	 	883	 	0.01	%	Employee, terminated
	Shoffner, Gregory D	 	0.00	%	—	 	771	 	11,562	 	771	 	0.00	%	Employee, terminated
	Goranson, Kelly J	 	0.00	%	—	 	500	 	4,250	 	500	 	0.00	%	Employee, terminated
	Langwell, Benjamin T	 	0.00	%	—	 	479	 	14,375	 	479	 	0.00	%	Employee, terminated
	(Johnson) Wright, Angie A	 	0.00	%	—	 	464	 	6,267	 	464	 	0.00	%	Employee, terminated
	Harmon, Roxana J	 	0.00	%	—	 	448	 	6,719	 	448	 	0.00	%	Employee, terminated
	Chang, Tiee-Yuh (Tammy)	 	0.00	%	—	 	365	 	8,750	 	365	 	0.00	%	Employee, terminated
	Martinez, Linda R	 	0.00	%	—	 	147	 	3,520	 	147	 	0.00	%	Employee, terminated
	King, Jennifer M	 	0.00	%	—	 	131	 	3,935	 	131	 	0.00	%	Employee, terminated
	Gallentine, Delores R	 	0.00	%	—	 	110	 	3,308	 	110	 	0.00	%	Employee, terminated
	Artigliere, Anthony	 	0.00	%	—	 	4,000	 	49,000	 	4,000	 	0.02	%	Employee, terminated
	Wand, Michael D	 	0.01	%	—	 	68,000	 	538,375	 	68,774	 	0.39	%	Outside Investor
	O'Callaghan, Michael J	 	0.00	%	—	 	16,511	 	122,037	 	16,624	 	0.10	%	Outside Investor
	Thurmes, William N	 	0.00	%	—	 	15,685	 	97,567	 	15,826	 	0.09	%	Outside Investor
	Vohra, Rohini T	 	0.00	%	—	 	9,295	 	59,674	 	9,436	 	0.05	%	Outside Investor
	Meadows, Michael R & McCormick, Regina A	 	0.01	%	—	 	—	 	—	 	1,547	 	0.01	%	Employee
	Meadows, Michael R	 	0.00	%	—	 	28,510	 	207,036	 	28,623	 	0.16	%	Employee
	Wieseler, Todd G.	 	0.00	%	—	 	28,000	 	399,000	 	28,000	 	0.16	%	Employee
	Skaare, David K	 	0.00	%	—	 	19,000	 	227,000	 	19,000	 	0.11	%	Employee
	Berliner, Christopher J	 	0.00	%	—	 	17,000	 	135,825	 	17,000	 	0.10	%	Employee
	Huffman, William	 	0.00	%	—	 	16,000	 	145,000	 	16,000	 	0.09	%	Employee
	Taylor, James	 	0.00	%	—	 	13,000	 	71,500	 	13,000	 	0.07	%	Employee
	Jagemalm, Pontus A.	 	0.00	%	—	 	11,750	 	125,875	 	11,750	 	0.07	%	Employee
	Reinhard, Steven	 	0.00	%	—	 	10,500	 	57,750	 	10,500	 	0.06	%	Employee
	Yee, Michael	 	0.00	%	—	 	10,500	 	106,750	 	10,500	 	0.06	%	Employee
	McConahy, Brian	 	0.00	%	—	 	10,250	 	70,625	 	10,250	 	0.06	%	Employee
	Low, Chin Chor	 	0.00	%	—	 	10,000	 	104,000	 	10,000	 	0.06	%	Employee
	More, Kundalika M	 	0.00	%	—	 	9,584	 	54,967	 	9,826	 	0.06	%	Employee
	Ferguson, Rachel	 	0.00	%	—	 	9,500	 	70,750	 	9,500	 	0.05	%	Employee
	Lewis, Susan M	 	0.00	%	—	 	9,500	 	107,750	 	9,500	 	0.05	%	Employee
	Parghi, Deven	 	0.00	%	—	 	9,500	 	52,250	 	9,500	 	0.05	%	Employee
	Dallas, James	 	0.00	%	—	 	9,375	 	60,688	 	9,375	 	0.05	%	Employee
	Larsen, Per	 	0.00	%	—	 	9,375	 	63,438	 	9,375	 	0.05	%	Employee
	Walker, Christopher	 	0.00	%	—	 	9,350	 	58,600	 	9,350	 	0.05	%	Employee
	O'Neill, Matthew B	 	0.00	%	—	 	8,575	 	57,138	 	8,575	 	0.05	%	Employee
	Harmes, Benjamin L	 	0.00	%	—	 	8,500	 	56,250	 	8,500	 	0.05	%	Employee
	Lundie, Gregory P	 	0.00	%	—	 	8,500	 	65,250	 	8,500	 	0.05	%	Employee
	Koprowski, Brian C	 	0.00	%	—	 	8,125	 	58,563	 	8,125	 	0.05	%	Employee
	Yang, Su	 	0.00	%	—	 	7,625	 	49,063	 	7,625	 	0.04	%	Employee
	O'Donnell, Patrick	 	0.00	%	—	 	7,000	 	38,500	 	7,000	 	0.04	%	Employee
	Elquest, Douglas K	 	0.00	%	—	 	6,500	 	45,250	 	6,500	 	0.04	%	Employee
	Goranson, Pamela J	 	0.00	%	—	 	6,307	 	37,048	 	6,307	 	0.04	%	Employee
	Keene, Julie	 	0.00	%	—	 	5,569	 	35,056	 	5,569	 	0.03	%	Employee
	Shiba, Eitoku	 	0.00	%	—	 	5,500	 	39,750	 	5,500	 	0.03	%	Employee
	Jordan, Belinda	 	0.00	%	—	 	4,750	 	35,375	 	4,750	 	0.03	%	Employee
	Feddersen, Jody M	 	0.00	%	—	 	4,375	 	28,688	 	4,375	 	0.03	%	Employee
	Arno, Erin	 	0.00	%	—	 	4,250	 	35,625	 	4,250	 	0.02	%	Employee
	Cohn, Sarah J	 	0.00	%	—	 	3,375	 	23,188	 	3,375	 	0.02	%	Employee
	Diehl, Melissa	 	0.00	%	—	 	3,250	 	22,625	 	3,250	 	0.02	%	Employee
	Hokin, Richard	 	0.00	%	—	 	17,500	 	221,250	 	17,500	 	0.10	%	Director
	Swanson, Stanley R.	 	0.00	%	—	 	10,366	 	10,366	 	10,366	 	0.06	%	Consultant
	Dozier, Glenn	 	0.00	%	—	 	5,000	 	33,000	 	5,000	 	0.03	%	Consultant
	Weinberger, David	 	0.00	%	—	 	4,750	 	71,250	 	4,750	 	0.03	%	Consultant
	Kostanecki, Andrew T.	 	0.00	%	—	 	3,060	 	3,060	 	3,060	 	0.02	%	Consultant
	Everets, John	 	0.00	%	—	 	2,000	 	24,500	 	2,000	 	0.01	%	Consultant
	McLean, Roger	 	0.00	%	—	 	1,762	 	1,762	 	1,762	 	0.01	%	Consultant
	Gaalema, Stephen	 	0.00	%	—	 	1,500	 	1,500	 	1,500	 	0.01	%	Consultant
	Eppner, Gerald A.	 	0.00	%	—	 	1,000	 	15,000	 	1,000	 	0.01	%	Consultant
	Black Forest Engineering,	 	0.00	%	—	 	750	 	750	 	750	 	0.00	%	Consultant
	Zadow, Jerry	 	0.00	%	—	 	679	 	679	 	679	 	0.00	%	Consultant
	Ward, David	 	0.00	%	—	 	500	 	500	 	500	 	0.00	%	Consultant
	Lane, William Kerry	 	0.00	%	—	 	50	 	50	 	50	 	0.00	%	Consultant
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	 
	 	 	100.00	%	305,990	 	1,792,929	 	14,578,630	 	17,417,433	 	100.00	%	 
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	 
	 	 	1.0000	 	305,990.0000	 	1,792,929.0000	 	14,578,629.9852	 	17,417,433.2091	 	1.0000	 	 






	**
	Preferred
Series E-2 and E-1 shares are included based on number of preferred shares issued, all other Preferred Series stock is included on a common
share equivalent basis.



	***
	HP
Convertible Note plus interest is calculated as of 2/10/03 







SCHEDULE 4.12(a)  


Summary Table  



	Owned and Licensed US Patents	 	61	 	Owned and Licensed US Patent Applications	 	31
	Owned and Licensed Foreign Patents	 	12	 	Owned and Licensed Foreign Patent Applications	 	20
	TOTAL	 	73	 	TOTAL	 	51





Displaytech Owned US Patents  



	Patent No.
 
	 	Title
	 	Issue Date
	 	Expires

	6,426,783	 	Continuously Viewable DC-Field Balanced, Reflective, Ferroelectric Liquid Crystal Image Generator	 	7/30/02	 	2/18/18
	6,413,448	 	Cyclo-hexyl- and Cyclohexynl-substituted Liquid Crystals with Low Birefringence	 	7/20/02	 	4/26/19
	6,369,933	 	Optical Correlator Having Multiple Active Components Formed on a Single	 	4/9/02	 	12/18/19
	6,359,723	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Crystal Image Generator	 	3/19/02	 	12/12/14
	6,317,112	 	Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme	 	11/13/01	 	12/22/14
	6,310,664	 	Continuously Viewable, DC Field-Balanced, Reflective, Ferroelectric Liquid Crystal Image Generator	 	10/30/01	 	2/18/18
	6,247,037	 	Optical Correlator Having Multiple Active Components Formed on a Single Integrated Circuit	 	6/12/01	 	1/28/19
	6,195,136	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator	 	2/27/01	 	12/12/14
	6,144,421	 	Continuously Viewable, DC-Field Balanced Reflective, Ferroelectric Liquid Crystal Image Generator	 	11/7/00	 	2/18/18
	6,139,771	 	Mesogenic Materials with Anomalous Birefringence Dispersion and High Second Order Susceptibility	 	10/31/00	 	4/4/17
	6,100,945	 	Compensator Arrangements for a Continuously Viewable, DC Field-Balanced, Reflective, Ferroelectric Liquid Crystal Display System	 	8/8/00	 	2/18/18
	6,075,577	 	Continuously Viewable, DC Field-Balanced, Reflective, Ferroelectric Liquid Crystal Image Generator	 	6/13/00	 	2/18/18
	6,038,005	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator	 	3/14/00	 	12/22/14
	6,025,890	 	Beam Splitter Element Including a Beam Splitting Layer and a Polarizing Layer for use in a Light Polarization Modulating Display System	 	2/15/00	 	2/20/18
	6,016,173	 	Optics Arrangement Including a Compensator Cell and Static Wave Plate For a Continuously Viewable, Reflection Mode, Ferroelectric Liquid Crystal Spatial Light Modulating System	 	1/18/00	 	2/18/18
	5,900,976	 	Display System including a Polarizing Beam Splitter	 	5/4/99	 	2/20/18
	5,866,036	 	High Tilt Ferroelectric Liquid Crystal Compounds and Compositions	 	2/2/99	 	2/2/16
	5,808,800	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator	 	9/15/98	 	9/15/15
	5,757,348	 	Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme	 	5/26/98	 	5/26/15
	 	 	 	 	 	 	 









	5,753,139	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein	 	5/19/98	 	5/19/15
	5,748,164	 	Active Matrix Liquid Crystal Image Generator	 	5/5/98	 	5/5/15
	5,694,147	 	Liquid Crystal Integrated Circuit Display Including an Arrangement for Maintaining the Liquid Crystal at a Controlled Temperature	 	12/2/97	 	4/14/15
	5,626,792	 	High Birefringence Liquid Crystal Compounds	 	5/6/97	 	9/6/14
	5,596,451(1)	 	Miniature Image Generator Including Optics Arrangement	 	1/21/97	 	1/30/15
	5,585,036	 	Liquid Crystal Compounds Containing Chiral 2-Halo-2-Methyl Ether and Ester Tails	 	12/17/96	 	12/17/13
	5,552,916	 	Diffractive Light Modulator	 	9/3/96	 	9/3/13
	5,539,555(2)	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein	 	7/23/96	 	7/23/13
	5,523,864	 	Analog Liquid Crystal Spatial Light Modulator Including an Internal Voltage Booster	 	6/4/96	 	1/26/14
	5,500,748(3)	 	Liquid Crystal Spatial Light Modulator Including an Internal Voltage Booster	 	3/19/96	 	1/26/14
	5,457,235	 	Halogenated Diphenyldiacetylene Liquid Crystals	 	10/10/95	 	10/10/12
	5,453,218	 	Liquid Crystal Compounds Containing Chiral 2-Halo-2 Methyl Alkoxy Tails	 	9/26/95	 	9/26/12
	5,422,037	 	Ferroelectric Liquid Crystal Compounds Containing Halogenated Cores and Chiral Haloalkoxy Tail Units	 	6/6/95	 	6/6/12
	5,380,460	 	Ferroelectric Liquid Crystal Compounds Containing Chiral Haloalkoxy Tail Units and Compositions Containing Them	 	1/10/95	 	1/10/12
	RE 34,726	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	9/13/94	 	7/14/09
	5,347,378	 	Fast Switching Color Filters for Frame-Sequential Video Using Ferroelectric Liquid Crystal Color-Selective Filters	 	9/13/94	 	9/13/11
	5,271,864	 	Ferroelectric Liquid Crystal Compounds with Cyclohexenyl Cores and Compositions Containing Them	 	12/21/93	 	8/7/12
	5,182,665	 	Diffractive Light Modulator	 	1/26/93	 	9/7/10
	5,180,520(4)	 	Ferroelectric Liquid Crystal Compositions Containing Halogenated Cores and Chiral Halogenated Cores and Chiral Haloalkoxy Tail Units	 	1/19/93	 	1/19/10
	5,178,791	 	Halogenated Diphenyldiacetylene Liquid Crystals	 	1/12/93	 	3/11/11
	5,178,445(5)	 	Optically Addressed Spatial Light Modulator	 	1/12/93	 	1/12/10
	5,167,855(4)	 	Ferroelectric Liquid Crystal Compositions Chiral Haloalkoxyl Tail Units	 	12/1/92	 	12/1/09
	5,061,814	 	High Tilt Ferroelectric Liquid Crystal Compounds and Compositions	 	10/29/91	 	6/1/09
	5,051,506	 	Ferroelectric Liquid Crystal Compounds Containing Chiral Haloalkoxy Tail Units and Compositions Containing Them	 	9/24/91	 	9/24/08
	4,813,771	 	Electro-Optic Switching Devices Using Ferroelectric Liquid Crystals	 	3/21/89	 	10/15/07






	(1)
	jointly
owned by Displaytech, Inc. and Martin Shenker Optical Design, Inc.



	(2)
	jointly
owned by Displaytech, Inc. and Hoechst Aktiengesellschaft (with bilateral restrictions on field of use based on display size; Displaytech has exclusive right to
displays with an active area of 10 cm. or less in diameter, Hoechst has exclusive right to displays with an active area greater than 10 cm. in diameter) 







	(3)
	jointly
owned by Displaytech, Inc. and Stephen D. Gaalema



	(4)
	owned
solely by Displaytech, Inc.; assignee data on patent cover sheet is incorrect



	(5)
	jointly
owned by Displaytech, Inc. and University of Colorado Foundation (assignment not recorded at PTO) 


SCHEDULE 4.12(a)  


Displaytech Owned Foreign Patents  



	Country
 
	 	Patent No.
	 	Title
	 	Issue Date
	 	Expires

	Canada	 	1,299,721	 	Electro-Optic Switching Devices Using Ferroelectric Liquid Crystals	 	4/28/92	 	4/28/09
	Germany	 	69109680	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	5/10/95	 	7/22/11
	Japan	 	2868774	 	Electro-Optic Switching Devices Using Ferroelectric Liquid Crystals	 	12/25/98	 	10/14/08
	Japan	 	3124772	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	10/27/00	 	7/22/11
	Korea	 	184,242	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	12/17/98	 	7/22/11
	Korea	 	261,354	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch FLC Compositions Useful Therein	 	4/18/00	 	2/6/13
	Korea	 	283,163	 	Ferroelectric Liquid Crystal Compounds with Cyclohexenyl Cores and Compositions Containing Them	 	12/6/00	 	8/6/13
	Sweden	 	0 540 648	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	5/10/95	 	7/22/11
	Sweden	 	515 705	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch FLC Compositions Useful Therein	 	9/24/01	 	2/5/13
	United Kingdom	 	0 540 648	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	5/10/95	 	7/22/11
	United Kingdom	 	2 263 982	 	Ferroelectric Liquid Crystals	 	2/28/96	 	1/29/13
	Canada	 	2,087,592	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units	 	4/16/02	 	7/22/11










Displaytech Owned Pending US Patent Applications  



	App. No.
 
	 	Title
	 	Date Filed

	08/953,613	 	Methods and Arrangements for Using an Analog Signal to Provide Gray Scale on a Binary Pixel	 	10/17/97
	09/045,247	 	Active Matrix Liquid Crystal Image Generator	 	3/20/98
	09/313,227	 	RGB Illuminator with Calibration via Single Detector Servo	 	5/17/99
	09/388,249	 	Non-DC-Balanced Drive Scheme for Liquid Crystal Device	 	9/1/99
	 	 	[*****]	 	 
	09/604,524	 	Methods and Arrangements for Improving Contrast in FLC Devices	 	6/27/00
	09/639,500	 	Mesogenic Materials with Anomalous Birefringence Dispersion and High Second Order Susceptibility	 	8/11/00
	09/653,437	 	Ferroelectric Liquid Crystal Devices Using Materials with a deVries Smectic A Phase	 	9/1/00
	09/706,553	 	Efficient Method of Manufacturing Liquid Crystal Devices	 	11/2/00
	09/718,843	 	Multi-State Light Modulator with Non-Zero Response Time and Linear Gray Scale	 	11/22/00
	09/754,033	 	Alkyl Silane Liquid Crystal Compounds	 	1/3/01
	09/753,749	 	Liquid Crystal Compounds Having a Silane Tail with a Perfluoroalkyl Terminal Portion	 	1/3/01
	09/754,034	 	Liquid Crystalline Materials Containing Perfluoroalkyl and Alkenyl Tails	 	1/3/01
	09/817,809	 	Subpixellated Reflective Microdisplays	 	3/14/01
	09/809,741	 	DC-Balanced and Non-DC-Balanced Drive Schemes for Liquid Crystal Device	 	3/14/01
	09/809,998	 	Data Scheduling with Banks in Reflective Microdisplays	 	3/14/01
	09/828,295	 	Ferroelectric Liquid Crystal Infrared Chopper	 	4/6/01
	09/854,181	 	Partially Fluorinated Liquid Crystal Materials	 	5/11/01
	09/885,862	 	Bookshelf Liquid Crystal Materials and Devices	 	6/20/01
	 	 	[*****]	 	 
	 	 	[*****]	 	 
	 	 	[*****]	 	 
	09/992,097	 	Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme	 	11/5/01
	09/989,976	 	Dual Mode Near-Eye and Projection Display System	 	11/20/01
	 	 	[*****]	 	 
	10/067,516	 	Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator	 	2/4/02
	 	 	[*****]	 	 










Displaytech Owned Pending Foreign Patent Applications  



	Date Filed
 
	 	App. No.
	 	Country
	 	Title

	7/22/91	 	2,087,592	 	Canada	 	Ferroelectric Liquid Crystal Compositions Containing Chiral Haloalkoxy Tail Units
	2/05/93	 	9300375-4	 	China	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein
	2/05/93	 	43 03 335.0	 	Germany	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein
	2/08/93	 	2088934	 	Canada	 	High Contrast Distorted Helix Effect Electro-Optic Devices Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein
	2/08/93	 	5-20412	 	Japan	 	High Contrast Distorted Helix Effect Electro-Optic Devices and Tight Ferroelectric Pitch Ferroelectric Liquid Crystal Compositions Useful Therein
	8/04/93	 	5-193688	 	Japan	 	Ferroelectric Liquid Crystal Compounds with Cyclohexenyl Cores and Compositions Containing Them
	12/14/95	 	95943444.0	 	Europe	 	Active Matrix Liquid Crystal Image Generator
	2/17/99	 	2,321,252	 	Canada	 	Image Generating System
	2/17/99	 	99909497.2	 	Europe	 	Image Generating System
	2/17/99	 	2000-532773	 	Japan	 	Image Generating System
	2/17/99	 	01100431.6	 	Hong Kong	 	Image Generating System
	2/17/99	 	10-2000-7008981	 	Korea	 	Image Generating System
	8/29/00	 	PCT/US00/23645	 	PCT	 	Liquid Crystal Operation
	8/31/01	 	PCT/US01/27182	 	PCT	 	Partially Fluorinated Liquid Crystal Materials
	11/20/01	 	PCT/US01/	 	PCT	 	Dual Mode Near-Eye and Projection Display System
	11/21/01	 	PCT/US01/	 	PCT	 	Modulation Algorithm for Light Modulator










Patents Licensed from Clark and Lagerwall  



	Country
 
	 	Patent No.
	 	Title
	 	Issue Date
	 	Expires

	United States	 	RE 34,942	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with Means for Aligning LC molecules at Omega (Alpha) from Normal to the Means	 	5/16/95	 	6/20/06
	United States	 	RE 34,949	 	Surface Stabilized Ferroelectric Liquid Crystal Devices	 	5/23/95	 	9/25/07
	United States	 	RE 34,950	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with Means for Aligning LC Molecules at Omega (alpha) from Normal to the Means	 	5/23/95	 	3/21/06
	United States	 	RE 34,966	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with LC Molecules Aligned at Angle Omega (Alpha) from Normal to Substrates	 	6/13/95	 	1/7/03
	United States	 	RE 34,967	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with Plural Orientation States of Different Colors or Separated by Domain Walls	 	6/13/95	 	7/13/10
	United States	 	RE 34,973	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with Total Reflection in One State and Transmission in Another State	 	6/20/95	 	1/28/09
	United States	 	5,555,111	 	Surface Stabilized Ferroelectric Liquid Crystal Devices with Dielectric Torques Greater Than Ferroelectric Torques	 	9/10/96	 	3/21/06
	United States	 	5,555,117	 	Surface Stabilized Ferroelectric Liquid Crystal Devices	 	9/10/96	 	9/10/13





Patents Licensed from University Research Corp  



	Patent No.
 
	 	Title
	 	Issue Date
	 	Expires

	5,168,381	 	Smectic Liquid Crystal Devices Using SSFLC and Electroclinic Effect Based Cells	 	12/1/92	 	12/1/09
	5,178,793	 	Ferroelectric Liquid Crystal Compounds and Compositions	 	1/12/93	 	1/12/10
	5,543,078	 	Ferroelectric Liquid Crystals for Nonlinear Optics Applications	 	8/6/96	 	8/6/13
	5,596,434	 	Self-Assembled Monolayers for Liquid Crystal Alignment	 	1/21/97	 	1/21/14
	5,637,256	 	Ferroelectric Liquid Crystals for Nonlinear Optics Applications	 	6/10/97	 	6/10/14
	5,658,493	 	Ferroelectric Liquid Crystals for Nonlinear Optics Applications	 	8/19/97	 	8/19/14





US Patents Licensed from Georgia Tech Research Corp  



	Patent No.
 
	 	Title
	 	Issue Date
	 	Expires

	6,141,072	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays	 	10/31/00	 	4/2/18
	6,469,761	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays	 	10/22/02	 	4/2/18





US Patent Applications Licensed from Georgia Tech Research Corp  



	App. No.
 
	 	Title
	 	Date Filed

	09/669,180	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays	 	9/25/00










Foreign Patent Applications Licensed from Georgia Tech Research Corp  



	Priority Date
 
	 	App. No.
	 	Country
	 	Title

	4/3/98	 	Not yet Avail	 	Japan	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays
	4/3/98	 	98915254.1	 	Europe	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays
	4/3/98	 	2,285,924	 	Canada	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays
	4/3/98	 	10-1999-7009012	 	S. Korea	 	System and Method for Efficient Manufacturing of Liquid Crystal Displays





US Patents Licensed from Agilent Technologies, Inc.  



	Patent No.
 
	 	Title
	 	Issue Date
	 	Expires

	6,249,269	 	Analog Pixel Driver Circuit for an Electro-Optical Material-Based Display Device	 	6/19/01	 	4/30/18





US Patent Applications Licensed from Agilent Technologies, Inc.  



	Title
 
	 	 
	 	 

	Electro-Optical Material-Based Display Device Having Analog Pixel Drivers	 	 	 	 
	[*****]	 	 	 	 
	[*****]	 	 	 	 










AMENDED AND RESTATED

CONVERTIBLE NOTE  


THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE
SECURITIES. 


DISPLAYTECH,
INC. 


CONVERTIBLE
NOTE 



	$10,000,000.00	 	Longmont, Colorado

February 11, 2003
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 





Amended
and Restated Note 









   
        FOR VALUE RECEIVED, the undersigned, Displaytech, Inc., a Colorado corporation (the "Company"), promises to pay to the order of
Hewlett-Packard Company, a Delaware corporation (the "Purchaser'), or permitted assigns the principal sum of Ten Million dollars ($10,000,000.00), with
interest thereon as provided herein. 


        1.    Purchase Agreement; Original Notes.    


        1.1   The Company and Purchaser are parties to a certain Note Purchase Agreement dated as of February 12, 1999, as amended by a
certain Amendment No. 1 to Note Purchase Agreement between the Company and Purchaser dated as of February 19, 1999 and a certain Second Amendment to Note Purchase Agreement of even date herewith (as
so amended, the "Purchase Agreement"). 



        1.2   This Amended and Restated Convertible Note (this "Note") is issued
pursuant to the Purchase Agreement and extends, amends, modifies and restates those four certain Convertible Notes (the "Original Notes") issued as of
the following dates in the following principal amounts: (i) Convertible Note in the principal amount of $2,000,000.00, dated as of February 19, 1999; (ii) Convertible Note in the principal amount of
$3,000,000.00, dated as of February 26, 1999; (iii) Convertible Note in the principal amount of $3,000,000.00, dated as of July 12, 1999; and (iv) Convertible Note in the principal amount of
$2,000,000.00, dated as of October 26, 1999. Each of the Original Notes was previously modified pursuant to a certain Consent, Amendment and Waiver of Rights Arising Due to Issuance of Series D
Convertible Preferred Stock executed by the Company and Purchaser and dated as of July 30, 2001. Interest at the rate of 9% per annum has accrued on each of the Original Notes, pursuant to the terms
thereof, from the issuance date of each such Original Note through the date hereof, in the total amount of Three Million Three Hundred Ninety Two Thousand Five Hundred Dollars ($3,392,500.00)
("Existing Accrued Interest"). Existing Accrued Interest remains unpaid as of the date of this Note. 



        2.    Definitions.    As used in this Note, the following terms have
the meaning indicated: 



        "Affiliate", when used with respect to any Person, means (i) if such Person is a corporation, any officer or director thereof and any
Person which is, directly or indirectly, the beneficial owner (by itself or as part of any group) of more than five percent (5%) of any class of any equity security (within the meaning of the Exchange
Act) thereof, and, if such beneficial owner is a partnership, any general partner thereof, or if such beneficial owner is a corporation, any Person controlling, controlled by or under common control
with such beneficial owner, or any officer or director of such beneficial owner or of any corporation occupying any such control relationship, (ii) if such Person is a partnership, any general or
limited partner thereof, and (iii) any other Person which, directly or indirectly, controls or is
controlled by or is under common control with such Person. For purposes of this definition, "control" (including the correlative terms "controlling", "controlled by" and "under common control with"),
with respect to any Person, shall mean possession, directly or indirectly, of the 



2









  



power
to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 


        "Business Combination" means any merger, consolidation, sale of all or substantially all assets or similar transaction. 



        "Business Day" means any day which is not a day on which banking institutions in the Cities of New York, Denver or San Francisco are
authorized or obligated by law, regulation or executive order to close. 


        "Capital Stock" means any and all shares of capital stock of the Company (however designated and whether voting or nonvoting), and shall
include, but not be limited to, the Common Stock and the Preferred Stock. 


        "Capital Stock Rights" means any warrants, options or other rights to purchase Capital Stock or any securities convertible into Capital
Stock or any participations or other interests (other than security interests) in Capital Stock. 


        "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act) other than holders of the Company's Series E-1 Senior Preferred Stock is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) any consolidation of the Company with, or merger
of the Company into, any other person, any merger of another person into the Company or any other Business Combination involving the Company which results in the holders of the Company's Capital Stock
immediately prior to giving effect to such transaction owning shares of capital stock of the surviving corporation in such transaction representing (x) fifty percent (50%) or less of the total voting
power of all shares of capital stock of such surviving corporation entitled to vote or (y) fifty percent (50%) or less of the total value of all capital stock of such surviving corporation; (c) the
sale of all or substantially all of the operating assets of the Company; (d) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors (i) whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of
662/3% of the directors then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so approved or (ii) designated by the same Company shareholders that designated such initial individuals (and their successors) as
directors) cease for any reason to constitute a majority of the Board of Directors of the Company then in office (regardless of the actual size of the Board of Directors of the Company); or (c) the
Company is liquidated or dissolved or adopts a plan of liquidation. 


        "Common Stock" means the Common Stocks, par value $.001 per share, of the Company and all shares hereafter authorized of any class of
common stock of the 



3









  



Company,
and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a consolidation or merger of the Company with or into another Person,
such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event. 


        "Conversion Right" has the meaning set forth in Section 6.1 hereof. 



        "Conversion Notice" has the meaning set forth in Section 6.2(a) hereof. 


        "Convertible Portion" has the meaning set forth in Section 6.1 hereof. 


        "Event of Default" has the meaning set forth in Section 11 hereof. 


        "Existing Accrued Interest" has the meaning set forth in Section 1.2 hereof. 



        "Holder" of this Note means the Person in whose name this Note is registered on the books of the Company. 


        "Indemnity" has the meaning set forth in Section 13(f) hereof. 


        "Maturity Date" Means February 19, 2008. 


        "Mandatory Conversion Date" has the meaning set forth in Section 5.2 hereof. 



        "Note Conversion Price" means an amount initially equal to One Hundred Dollars ($100) as such amount shall be adjusted from time to time
in accordance with the provisions of Section 8 hereof. 


        "Optional Conversion Date" has the meaning set forth in Section 6.2(b) hereof. 


        "Original Notes" means the four Convertible Notes described in Section 1 hereof. 


        "Payment Date" has the meaning set forth in Section 3.2. 



        "Person" means an individual, a corporation, a partnership, a joint venture, an association, a joint stock company, a trust, a business
trust, a government or any agency or any political subdivision, any unincorporated organization or any other entity. 


        "PIK Interest Shares" has the meaning set forth in Section 3.1. 


        "Preferred Stock" means the shares of the Company's Series D Convertible Preferred Stock, par value $.001 per share, or the shares of any
class or series of Capital Stock or Capital Stock Rights into which this Note shall hereafter become convertible, in accordance 



4









  



with
its terms, as a result of reclassification of the Company's Series D Convertible Preferred Stock or otherwise. 


        "Purchase Agreement" has the meaning set forth in Section 1.1 hereof. 


        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts, commissions and other expenses, are at least $25,000,000.00,
and (ii) the price per share of Common Stock sold in such offering is not less than 125% of the HP Common Price. As used herein, "HP Common Price" means the amount determined by dividing (x)
the aggregate outstanding balance of unpaid principal and accrued interest under this Note as of the time such offering is consummated by (y) the number of shares of Common Stock into which such
aggregate outstanding balance of principal and accrued interest is at that time convertible pursuant to the terms of this Note (whether directly or, if then required by the provisions of this Note,
following the prior conversion of this Note into shares of Preferred Stock). 


        "Section 4.2 Payments" has the meaning set forth in Section 4.2. 


        "Section 4.3 Excess" has the meaning set forth in Section 4.3. 




        Any
other capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement. 



        3.    Payment of Principal and Interest.    Subject to Sections 5 and
Section 6 hereof, this Note shall be due and payable in accordance with the following provisions: 



        3.1   The Company promises to pay: (i) the full amount of Existing Accrued Interest; plus (ii) interest on the outstanding
principal amount of this Note from the date hereof, until this Note is paid in full, at the rate of 9% per annum. All Interest on this Note (including Existing Accrued Interest) shall be due and
payable on the Maturity Date or such earlier date as the principal amount shall have been repaid or converted or as may be required pursuant to Section 3.2, as the case may be, in full. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months. Interest shall be payable as specified in Section 13(a), except that if this Note is converted upon a Qualified Public Offering
pursuant to Section 5 or if the Holder of this Note exercises its Conversion Right (other than the exercise of such Conversion Right upon a Change of Control or Event of Default) pursuant to Section
6.1, then the Company shall pay (if such conversion is pursuant to Section 5) or may at its option elect to pay (if such conversion is pursuant to Section 6) the interest accrued on the principal
amount of this Note being converted by issuing additional fully paid and nonassessable shares of Preferred Stock (the "PIK Interest Shares"), with the
number of PIK Interest Shares to be issued to be calculated by dividing the amount of interest accrued on the principal amount being converted by the Note Conversion Price then in effect. 



5









  



        3.2   Subject to Section 4.2, the Company shall pay the following amounts on or before the following dates (each a
"Payment Date"), in reduction of principal and accrued interest under this Note: 



        (a)   The
sum of Five Hundred Thousand Dollars ($500,000.00) on or before February 19, 2006; 


        (b)   The
additional sum of One Million Dollars ($1,000,000.00) on or before August 19, 2006; 


        (c)   The
additional sum of One Million Five Hundred Thousand Dollars ($1,500,000.00) on or before February 19, 2007; 


        (d)   The
additional sum of Two Million Dollars ($2,000,000.00) on or before August 19, 2007; and 


        (e)   The
full remaining principal balance and all accrued interest on or before the Maturity Date. 




        3.3   Notwithstanding any provision of the Note to the contrary, upon a Change of Control prior to the Maturity Date, the
Holder may, at its option upon written notice to the Company, (i) accelerate payment of the unpaid principal and accrued interest on this Note to the date of consummation of such Change of
Control, (ii) exercise the Conversion Right, (iii) keep the Notes outstanding, such that interest shall continue to accrue until the Maturity Date, or (iv) select a combination of
any or all of the foregoing. 


        3.4   Each payment under this Note (whether pursuant to Section 3.2 or otherwise) shall be applied as follows:
(a) first, to accrued but unpaid interest; and (b) thereafter, to the principal amount outstanding as of the time of such payment. 




        4.    Prepayment.    The Company may, at its option, at any time and
from time to time and prior to the Maturity Date, prepay all or any portion of the principal amount of this Note, without prepayment penalty or premium. Any such prepayment shall be in accordance with
the following terms and conditions: 



        4.1   The Company shall give the Holder prior written notice of its irrevocable election to prepay this Note as provided above
(identifying the date of prepayment, the full amount of the payment proposed to be made, and the portion thereof that is allocable to principal pursuant to the provisions of Section 3.4), which
written notice shall be delivered to the Holder at least sixty (60) Days prior to any such prepayment date. 



        4.2   To the extent (if any) that the aggregate amount of accrued interest and principal paid by the Company pursuant to this
Note on or before August 19, 2006 ("Section 4.2 Payments") exceeds One Million Five Hundred Thousand Dollars ($1,500,000.00), the Company shall receive
(in addition to the credit received for the amount 



6









  



of
such payments) a credit against its obligations under this Note in an amount equal to 20% of such excess. Each such credit (i) shall be applied to accrued interest and principal in
substantially the same manner as is set forth in Section 3.4, as if the amount of such credit were a payment and (ii) shall be credited against, and offset from, the Company's obligation for
payments coming due on the next succeeding Payment Date(s). By way of example only, if the Company pays principal and accrued interest in the aggregate amount of Two Million Dollars ($2,000,000.00) on
or before August 19, 2006, then the Company shall be entitled to a credit in the amount of One Hundred Thousand Dollars ($100,000.00) against the payment required to be made on or before
February 19, 2007 pursuant to Section 3.2(c). 


        4.3   For purposes of this Section 4.3, the "Section 4.3 Excess" shall mean the
amount, if any, by which (a) the aggregate amount of accrued interest and principal paid by the Company pursuant to this Note on or before August 19, 2007 exceeds (b) the full
amount of Section 4.2 Payments actually made by the Company. Provided that the Company timely makes all payments required to be made under this Note as of August 19, 2006, then to the extent
(if any) that the Section 4.3 Excess exceeds Three Million Five Hundred Thousand Dollars ($3,500,000.00), the Company shall receive (in addition to the credit received for the amount of such payments)
a credit against its obligations under this Note in an amount equal to 10% of the amount by which the Section 4.3 Excess exceeds Three Million Five Hundred Thousand Dollars ($3,500,000.00).
Each such credit (i) shall be applied to accrued interest and principal in substantially the same manner as is set forth in Section 3.4, as if the amount of such credit were a payment
and (ii) shall be credited against, and offset from, the Company's obligation for payments coming due on the next succeeding Payment Date(s). By way of example only, if the Company pays
(A) principal and accrued interest in the aggregate amount of Two Million Dollars ($2,000,000.00) on or before August 19, 2006 and (B) principal and accrued interest in the
additional aggregate amount of Four Million ($4,000,000.00) on or before August 19, 2007, then in addition to the credit described in the last sentence of Section 4.2, the Company shall
be entitled to a credit in the amount of Fifty Thousand Dollars ($50,000.00) against the payment required to be made on or before the Maturity Date pursuant to Section 3.2(e). 




        5.    Mandatory Conversion.    



        5.1    Conversion upon IPO.    The outstanding
principal and interest of this Note shall be converted automatically into the number of shares of Preferred Stock obtained by dividing the aggregate amount of such principal and interest by the then
effective Note Conversion Price, immediately upon the closing of a Qualified Public Offering. The number of shares of Preferred Stock obtained upon the closing of a Qualified Public Offering shall
then be converted into shares of Common Stock in accordance with the provisions of Section 5.2; provided, that notwithstanding any provision of
this Note to the contrary, no portion of this Note shall be converted into shares of Preferred Stock pursuant to the provisions of this Section 5.1 unless immediately thereafter, such shares of
Preferred Stock automatically convert (in the manner set forth in Section 5.2) into shares of Common Stock having an aggregate value (based on the price per share of Common Stock sold in the
Qualified 



7









  



Public
Offering) of at least 125% of the aggregate amount of principal and accrued interest to be converted hereunder. 


        5.2    Notice of Mandatory Conversion.    Within five (5) Business
Days after the date on which this Note converts into shares of Preferred Stock and is then converted into shares of Common Stock as described in Section 5.1 (the
"Mandatory Conversion Date"), the Company shall mail a notice of conversion by first class mail, postage prepaid, to the Holder, addressed to the Holder
at its last address shown on the books of the Company. Notwithstanding any provision of this Note or any other document or instrument to the contrary, this Note (and, in accordance with the provisions
of this Section 5.2, the shares of Preferred Stock issuable upon conversion of this Note) shall be converted automatically and without any further action by the Holder hereof on the Mandatory
Conversion Date, whether or not this Note or any other certificates, documents or instruments are surrendered to the Company by the Holder. On the Mandatory Conversion Date, the Company shall make
entries on the stock book of the Company reflecting the conversion of the Note into the shares of Preferred Stock and the conversion of the shares of Preferred Stock into Common Stock. The Company
shall be obligated to issue (i) certificates evidencing the shares of Common Stock issuable upon conversion of the Preferred Stock, and, (ii) as provided in Section 7 hereof, a
check or cash in respect of any fractional shares of Common Stock issuable upon such conversion, within three (3) days after the Mandatory Conversion Date. Within seven (7) days after the Mandatory
Conversion Date the Holder shall either deliver this Note to the Company, or notify the Company that this Note has been lost, stolen or destroyed and provide to the Company an Indemnity in respect
thereto. 




        6.    Optional Conversion.    



        6.1    Conversion Right.    Subject to the terms and conditions of
this Note and the Purchase Agreement, (i) on the Maturity Date, (ii) upon the occurrence of any Event of Default, (iii) following notice of prepayment of the Note pursuant to
Section 4, (iv) upon a Change of Control and (v) upon any public offering of the Company's securities (other than a Qualified Public Offering upon which this Note automatically
converts in accordance with Section 5), the Holder shall have the right (the "Conversion Right"), at its option, to convert the entire principal
amount of this Note or, at the Holder's election, any portion of the principal amount of this Note (the "Convertible Portion"), into that number of
fully paid and nonassessable shares of Preferred Stock obtained by dividing such principal amount or Convertible Portion, as the case may be, by the Note Conversion Price in effect on the date such
conversion is deemed to be effective. 


        6.2    Exercise of Conversion Right.    


        (a)   In
order to effect a conversion pursuant to Section 6.1, the Holder shall surrender this Note to the Company and shall give written notice, in substantially the
form of Exhibit A attached hereto, to the Company (a "Conversion Notice") that the Holder elects to convert this Note, or the Convertible Portion
as is specified in the Conversion Notice, into shares of Preferred Stock. Promptly upon receipt of a Conversion Notice and 



8









  



surrender
of this Note, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder (i) a certificate or certificates for the number of full shares of Preferred
Stock issuable upon the conversion of this Note, or the Convertible Portion, as the case may be, in accordance with the provisions of this Section 6, and, (ii) as provided in Section 7,
a check or cash in respect of any fractional shares of Preferred Stock issuable upon such conversion and, in accordance with Section 13(a), all accrued but unpaid interest on the principal
amount of this Note being converted. The foregoing notwithstanding, upon exercise of the Conversion Right (except an exercise of the Conversion Right upon a Change of Control or Event of Default), the
Company, at its option, may elect to pay the interest accrued on the principal amount of this Note then being converted by issuing PIK Interest Shares, with the number of PIK Interest Shares to be
issued to be calculated by dividing the amount of interest accrued on the principal amount of this Note or the Convertible Portion being converted on the Optional Conversion Date by the Note
Conversion Price then in effect. If the Holder exercises its Conversion Right upon a Change of Control or Event of Default, the election to receive PIK Interest Shares in lieu of interest accrued
shall be at the option of the Holder. If less than the entire principal amount of this Note is being converted, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder,
without charge to the Holder, a new Note in a principal amount equal to the unconverted principal amount of this Note and dated the date of this Note. 


        (b)   Each
conversion shall be deemed to have been effected on the date (the "Optional Conversion Date") on which this Note
shall have been surrendered to the Company and a Conversion Notice with respect to this Note shall have been received by the Company as described in Section 6.2(a). Any person in whose name any
certificate or certificates for shares of Preferred Stock shall be issuable upon conversion shall be deemed to have become the holder of record of the shares represented thereby on the Optional
Conversion Date. 


        6.3    No Other Adjustments.    Except as otherwise provided in this
Section 6 and Section 5 and Section 8, no payment or adjustment to the Note Conversion Price will be made for dividends or other distributions with respect to any shares of
Preferred Stock issuable upon conversion of this Note as provided herein. 


        7.    No Fractional Shares.    No fractional shares of Preferred Stock
or scrip representing fractional shares shall be issued upon conversion (whether optional or mandatory) of the principal amount and interest, if applicable, of this Note or the Convertible Portion. If
any fractional shares of Preferred Stock would, but for this Section 7, be issuable upon the conversion of this Note or the Convertible Portion, the Company shall make a payment therefor in
check or cash in an amount equal to the Fair Market Value of such fractional shares. The term "Fair Market Value" of any share of Preferred Stock shall mean the fair market value of the shares of
Preferred Stock as determined in good faith by the Board of Directors of the Company, which determination shall be conclusive. 



9









   
        8.    Adjustment of Note Conversion Price.    


        (a)   In
the event that the Company shall at any time after the date hereof: (i) declare a dividend or make a distribution on its Preferred Stock in shares of Preferred
Stock, (ii) subdivide or reclassify shares of its outstanding Preferred Stock into a greater number of shares, (iii) combine shares of its outstanding Preferred Stock into a smaller
number of shares, or (iv) pay a dividend or make a distribution on its Preferred Stock in shares of any series of its Capital Stock (other than Preferred Stock) or in any Capital Stock Rights,
or (v) issue to the holders of its Preferred Stock, by reclassification of its Preferred Stock or otherwise, shares of any series of its Capital Stock or any Capital Stock Rights, then the Note
Conversion Price in effect immediately prior to such event shall be adjusted so that the Holder of this Note shall be entitled to receive on conversion of this Note or the Convertible Portion, as the
case may be, the number of shares of Preferred Stock, other Capital Stock or Capital Stock Rights of the Company which such Holder would have owned or have been entitled to receive after the happening
of any of the events described above had this Note or the Convertible Portion been converted immediately prior to the happening of such event. Any adjustment made pursuant to this Section 8
shall become effective immediately after the effective date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision,
combination, reclassification or similar event. Such adjustment shall be made successively whenever any event referred to above shall occur. 


        (b)   Upon
an adjustment of the Note Conversion Price pursuant to Section 8(a), the Company shall give prompt written notice thereof to the Holder of this Note, which
notice shall state the Note Conversion Price resulting from such adjustment and shall set forth in reasonable detail the method of calculation of such Note Conversion Price and the facts upon which
such calculation was based. 


        (c)   In
case at any time: 



        (i)    the
Company shall determine to declare any dividend or make any distribution on its shares of Preferred Stock other than in shares of Capital Stock or in Capital Stock
Rights; 


        (ii)   there
shall be an impending Business Combination; or 


        (iii)  there
shall be an impending voluntary or involuntary dissolution, liquidation or winding up of the Company; 




then,
in any one or more of said cases, the Company shall give written notice of the action in question to the Holder of this Note. Such notice shall describe the material terms and conditions of such
action and shall specify (y) in the case of a dividend or distribution, the date on which the books of the Company shall close or a record shall be taken for such dividend or distribution and
the date as of which holders of shares of Preferred Stock of record shall participate in such dividend, or distribution, and (z) in the case of a Business Combination dissolution, liquidation
or winding up of the Company, the date on which such Business 


10









   
Combination, dissolution, liquidation or winding up shall take place and the date as of which the holders of Capital Stock shall be entitled to exchange their Capital Stock for securities or other
property deliverable upon such Business Combination, dissolution, liquidation or winding up. Such written notice shall be given at least ten (10) Business Days prior to the action in question and not
less than ten (10) business Days prior to the record date or the date on which the Company's stock transfer books are closed in respect thereof. The Holder shall keep such notice and any information
contained therein confidential, provided that: (A) this obligation of confidentiality does not apply to information which (i) was lawfully in Holder's possession prior to any disclosure
by the Company, (ii) is generally available to the public other than as a result of disclosure by Holder, or its employees, agents, representatives or others acting on Holder's behalf, or
(iii) becomes available to Holder on a non-confidential basis from a source other than the Company or its representatives provided that the source of such information was not bound by a
confidentiality agreement with the Company in respect thereof; and (B) Holder may disclose such notice and information to a limited group of Holder's directors, officers, employees, attorneys
or other professional advisors who are participating in the evaluation of the transactions and matters that are the subject to such notice and information, each of whom shall be informed of the
confidential nature of such information and the existence of the obligation set forth herein. 


        9.    Taxes on Shares Issued.    The issuance of stock certificates
upon conversion of this Note or the Convertible Portion pursuant to Sections 5 and 6 shall be made without charge to the converting Holder for any transfer, stamp or similar tax in respect of
the issuance thereof. 


        10.    Reservation of Shares.    The Company shall reserve, free from
preemptive rights, out of its authorized but unissued shares, or out of shares held in its treasury, sufficient shares of Preferred Stock to provide for the conversion, based on the Conversion Price
from time to time in effect, of the full principal amount of this Note from time to time outstanding. The Company covenants that all shares of Preferred Stock which may be issued upon conversion of
this Note or the Convertible Portion will upon issuance be duly authorized, validly issued, fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the
issuance thereof. 


        11.    Events of Default.    


        (a)   Each
of the following shall constitute an "Event of Default" hereunder: 



        (i)    the
Company shall fail to make any payment of principal or interest when due under this Note, and such failure continues for a period of seven (7) days after receipt of
written notice of nonpayment from the Holder; or 


        (ii)   the
Company does not perform or comply with any one or more of its material obligations in the Notes or the Purchase Agreement 



11









  



(other
than a default under (i) above) for a period of forty five (45) days after written notice of such default shall have been given to the Company by the Holder; or 


        (iii)  one
or more defaults in the required payments, including principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness (as defined in
the Purchase Agreement), when the same becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Company
has failed to cure such default or defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure,
or notice provisions of the Permitted Indebtedness; or 


        (iv)  an
involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of the
Company or of a substantial part of its property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (B) the appointment of a receiver, trustee, custodian, sequestrator, conservator or a similar official for the Company or for a substantial part of its
property or assets, or (C) the winding up or liquidation of the Company; and such proceeding or petition shall continue undismissed for sixty (60) days, or an order or decree approving or
ordering any of the foregoing shall be entered; or 


        (v)   the
Company shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (B) consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding for the filing of any petition described in paragraph (v) of this Section 11(a), (C) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for a substantial part of its property or assets, (D) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors, (F) become unable, admit in writing its inability or fail generally to pay
its debts as they become due or (G) take any action for the purpose of effecting any of the foregoing; or 



        (vi)  the
Company breaches any provision of that certain Mutual Cooperation Agreement between the Company and Purchaser 



12









  



dated
as of the date hereof, as same may be amended from time to time, which breach is not cured within thirty days after written notice to the Company; or 


        (vii) any
representation, warranty, certification or statement made by or on behalf of the Company in the Purchase Agreement or this Note, or in any certificate or other
document delivered pursuant hereto or thereto, shall have been incorrect in any material respect when made. 




        (b)   Notwithstanding
any provision of this Note to the contrary, the following are the consequences of an Event of Default: 



        (i)    if
an Event of Default other than as specified in clauses (iii), (iv) or (v) of Section 11(a) above shall occur, the Holder of this Note may, at its option, by notice in
writing to the Company, declare the unpaid principal of this Note, together with all interest accrued and unpaid thereon, to be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable; and 


        (ii)   if
an Event of Default specified in clause (iv) or clause (v) of Section 11(a) above shall occur, the unpaid principal of this Note, together with all interest accrued
and unpaid thereon, shall be and become immediately due and payable; 


        (iii)  if
any Event of Default shall occur, the Holder of this Note shall have the Conversion Right specified in Section 6 thereof. 




        (c)   The
rights and remedies of the Holder of this Note upon the occurrence of an Event of Default set forth above are in addition to and not in derogation of any other
rights such Holder may have under applicable law. 


        12.    Rank.    This Note shall rank senior to all indebtedness of the
Company, whether presently existing or hereinafter incurred, with the exception of (i) all obligations owed to Transamerica Business Credit Corporation ("TA") under that certain Master Lease Agreement
between the Company and TA dated as of July 6, 1998 and (ii) such future secured indebtedness of the Company as constitutes Permitted Indebtedness within the meaning of the Purchase Agreement. 



        13.    Miscellaneous.    


        (a)   All
payments hereunder shall be made by wire transfer of immediately available federal funds to such account as the Holder of this Note shall specify from time to time
by notice in writing to the Company. 


        (b)   This
Note shall be governed by the laws of the State of Colorado without giving effect to principles of conflicts of laws thereof. 


13









   
        (c)   The Company hereby waives presentment, protest, notice of nonpayment, dishonor and notice of dishonor, except to the extent expressly required hereby. 


        (d)   All
notices hereunder shall be given and deemed received in the manner specified for notices under the Purchase Agreement. 



        (e)   The
Company agrees to pay all costs of collection, including reasonable attorneys' fees and disbursements, in the event any sum payable pursuant to this Note is not paid
when due. 


        (f)    If
a mutilated Note is surrendered to the Company, or if the Holder of this Note claims this Note has been lost, destroyed or willfully taken and provides an indemnity
bond or agreement or other security sufficient, in the reasonable judgment of the Company, to protect the Company and any of its officers, directors, employees or representatives from any loss which
any of them may suffer if this Note is replaced (an "Indemnity"), then the Company shall issue a replacement Note of like tenor and dated the date of
this Note. 


        (g)   The
Company shall, at its expense and upon written request of the Holder of this Note and surrender of this Note for such purpose, issued new Notes in exchange therefor
in such denominations of at least $300,000 as shall be specified by the Holder of this Note, in an aggregate principal amount equal to the then unpaid principal amount of this Note and substantially
in the form of this Note, with appropriate insertions and variations, and dated the date of this Note. 


        (h)   This
Note may not be sold, assigned, transferred or otherwise disposed of ("Transfer"), except that the Purchaser or any
subsequent Holder of this Note may Transfer this Note to an Affiliate of the Purchaser. All of the covenants, stipulations, promises and agreements contained in this Note by or on behalf of the
Company shall bind its successors and assigns, whether so expressed or not. 


        (i)    The
Company shall keep at its principal office a register in which the Company shall provide for the registration of this Note and of transfers of this Note. Upon
surrender of this Note for transfer at the principal office of the Company, duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder hereof or its attorney duly
authorized in writing, the Company shall execute and deliver in the name of the designated transferee a new promissory note in a principal amount equal to the unpaid principal amount of, and dated the
date of this Note, and otherwise in the form of this Note. 


        (j)    Amendments
and modifications to this Note may be made only in the manner provided in Section 13.5 of the Purchase Agreement. The failure of the Holder to insist
on strict compliance with any of the terms, covenants, or conditions of this Note by the Company shall not be deemed a waiver of that or any other term, covenant, or condition, nor shall any waiver or
relinquishment of any right or power at any one time or times be deemed a 


14









   
waiver or relinquishment of that or any other right or power for all or any other time. Without limiting the generality of the foregoing, the acceptance by the Holder of any payment hereunder which is
less than the payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any rights or remedies available to the Holder hereunder
or by law at that time or at any subsequent time or nullify any prior exercise of any such right or remedy, except as and to the extent otherwise provided by law. 


15









   
        IN WITNESS WHEREOF, the Company has caused this Amended and Restated Convertible Note to be executed by an officer thereunto duly authorized this 11 day of February 2003. 



	

 	
 	

DISPLAYTECH, INC.
	

 	
 	

By:	

/s/  RICHARD BARTON      
	 	 	 	
 Name:  Richard Barton

Title:    Chief Executive Officer




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NOTE PURCHASE AGREEMENT



AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT


SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT